Q2 2026 Constellation Brands Inc Earnings Call

Speaker #2: Oh, my Lord.

Speaker #3: The greetings and welcome to the Constellation Brands Q2 fiscal year 2026 earnings call. At this time, all participants are in listen-only mode.

Blair Veenema: All right, greetings and welcome to the Constellation Brands Q2 Fiscal Year 2026 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will begin shortly. You may be placed into the question queue at any time by pressing star one on your telephone keypad, and we ask you to please limit yourselves to one question. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Blair Veenema, Vice President, Investor Relations. Please go ahead, Blair.

Speaker #3: A question and answer session will begin shortly. You may be placed into the question queue at any time by pressing *1 on your telephone keypad. We ask that you please limit yourselves to one question.

Speaker #3: As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Blair Venema, Vice President of Investor Relations.

Speaker #3: Please go ahead, Blair.

Speaker #4: Thank you, Kevin. Good morning, all, and welcome to Constellation Brands Q2 fiscal 2026 conference call. I am here this morning with Bill Newlands, our CEO, and Garth Hankinson, our CFO.

Blair Veenema: Thank you, Kevin. Good morning all, and welcome to Constellation Brands Q2 Fiscal 2026 conference call. I am here this morning with Bill Newlands, our CEO, and Garth Hankinson, our CFO. We trust you had the opportunity to review the news release, CEO and CFO commentary, and accompanying quarterly slides made available in the investors section of our company's website, www.cbrands.com. On that note, as a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in the news release and website. We encourage you to also refer to the news release and Constellation Brands' 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 #4: We trust you have had the opportunity to review the news release, CEO and CFO commentary, and accompanying quarterly slides. These materials are made available in the investor section of our company's website, www.cbrands.com.

Speaker #4: On that note, as a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in the news release and website.

Speaker #4: 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.

Speaker #4: 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 #4: Lastly, in line with prior quarters, I would ask that you limit yourselves to one question per person, which will help us to end our call on time.

Blair Veenema: Lastly, in line with prior quarters, I would ask that you limit yourselves to one question per person, which will help us to end our call on time. Thanks in advance, and over to your questions.

Speaker #4: Thanks in advance, and over to your questions.

Speaker #5: Thank you. We're now conducting a question-and-answer session. As a reminder, please limit yourselves to one question. If you'd like to be placed into the question queue, please press *1 at this time.

Blair Veenema: Thank you. We'll now be conducting a question and answer session. As a reminder, please limit yourselves to one question, and if you'd like to be placed into the question queue, please press star one at this time. If you'd like to remove your question, press star two. A confirmation tone will indicate your line is in the question queue. Our first question today is coming from Nick Modi from RBC Capital Markets. Your line is now live.

Speaker #5: If you'd like to remove your question, press *2. A confirmation tone will indicate your line is in the question queue. Our first question today is coming from Nick Moody from RBC Capital Markets.

Speaker #5: Your line is now live.

Speaker #6: Yeah, thank you. Good morning, everyone. so I, I hey, I, I just had a big picture question on volume growth. So the debate, across the industry, you know, has been primarily about structural versus cyclical.

[Analyst]: Thank you. Good morning, everyone.

Blair Veenema: Hey, Nick.

[Analyst]: I just had a big-picture question on volume growth. The debate across the industry has been primarily about structural versus cyclical. For Constellation Brands, there's just a bit more of a nuance within the cyclical bucket. You're dealing with the overall macro consumer slowdown, but also suppressed sentiment among Hispanic consumers. We did some work, and it showed there was a rapid drop-off in sales volume around March, April of this year for the brands and the pack sizes that really over-index the Hispanic consumers across your portfolio. That's right when the ICE activities started to pick up. The question, I guess, is this: do you think volumes would have grown in absence of the ICE activities based on everything that you've seen and all the data that you have? In other words, will volume growth resume when we start lapping these activities next year? Thanks.

Speaker #6: But for Constellation Brands, there's just a bit of a nuance within the cyclical bucket. So, you're dealing with the overall macro consumer slowdown, but also suppressed sentiment among Hispanic consumers.

Speaker #6: So we did some work, and it showed that there was a rapid drop-off in sales volume around March and April of this year, for the brands and the pack sizes that really over-index.

Speaker #6: The Hispanic consumers across your portfolio, right? And that's right when the ICE activity started to pick up. So the question, I guess, is this: do you think volumes would have grown in the absence of the ICE activities?

Speaker #6: Based on everything that you've seen and all the data that you have, and I guess, in other words, will volume growth resume when we start lapping these activities next year?

Speaker #6: Thanks.

Speaker #4: Yeah, thanks, Nick. You know, the key thing I think around that whole question is exactly what you put your finger on, which is: what is the consumer sentiment?

Bill Newlands: Yeah, thanks, Nick. You know, the key thing I think around that whole question is exactly what you put your finger on, which is what is the consumer sentiment? As you know, we are doing a monthly study of all consumers, both Hispanic and non-Hispanic. The thing that has stood out for us is that 80% of surveyed Hispanic and non-Hispanic consumers continue to express concern about the socioeconomic environment we face. 70% of those are specifically concerned about their personal finances, which goes right back to your point about cyclical versus non-cyclical. We've got a consumer base that's pulling in a bit, and they are not engaging. At the same time, you're seeing increased loyalty. Our loyalty is up with Corona in the general market. Our loyalty is up with Hispanic consumers for Modelo. You know, a lot of people ask the question about Gen Z often.

Speaker #4: And as you know, we are doing a monthly study of all consumers, both Hispanic and non-Hispanic. The thing that has stood out for us is that 80% of surveyed Hispanic and non-Hispanic consumers continue to express concern about the socioeconomic environment we face.

Speaker #4: And 70% of those are specifically concerned about their personal finances. Which goes right back to your point about cyclical versus non-cyclical. We've got a consumer base that's pulling in a bit.

Speaker #4: And they are not engaging at the same time. You're seeing increased loyalty; our loyalty is up with Corona and the general market. Our loyalty is up with Hispanic consumers for Modelo.

Speaker #4: You know, a lot of people ask the question about Gen Z often. We have twice the share of Gen Z as part of our overall mix versus the industry average.

Bill Newlands: We have twice this year, of Gen Z as part of our overall mix versus the industry average. We're sitting in a good spot as the consumer turns around and gets more comfortable with where they are. At the moment, there's just a tremendous amount of concern about socioeconomic issues really across the board. In our view, that's the significant thing that's been challenging both for us and for the category in general.

Speaker #4: So we're, we're sitting in a good spot. As the consumer turns around and gets more comfortable, with where they are. But at the moment, there's just a tremendous amount of concern about socioeconomic issues, really across the board.

Speaker #4: And that, and our view is that that's the significant thing that's been challenging both for us and for the category in general.

Speaker #5: Thank you. Next question is coming from Nadine Sarwat from Bernstein. Your line is now live.

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

Speaker #7: Hi, thank you, guys. I'd like to touch on CAPEX. So, you cut your top-line guidance last month. You have not cut your CAPEX guidance.

[Analyst]: Hi, thank you, guys. I'd like to touch on CAPEX. You cut your top-line guidance last month. You have not cut your CAPEX guidance. Can you comment on the rationale behind that? Is there scope to cut CAPEX for years beyond this fiscal year, given the weaker top line? Thank you.

Speaker #7: Can you comment on the rationale behind that? And is there scope to cut CAPEX for years beyond this fiscal year, given the weaker top line?

Speaker #7: Thank you.

Speaker #4: Hey, Nadine, thanks for the question. Let me try to answer that. There is a little bit of a near-term and a long-term answer there.

Blair Veenema: Hey, Nadine, thanks for the question. Let me try to answer that. There is a little bit of a near-term and a long-term answer there. First of all, consistent with our capital allocation priorities, we're going to continue to invest in the long-term growth in our business. Despite the near-term headwinds that Bill just highlighted, which we see as being primarily cyclical in nature, we're confident in the longer-term growth trajectory of the portfolio. We still believe that we need to invest in incremental capacity. Again, the answer is a bit nuanced. As we look at FY26, we didn't adjust CAPEX for FY26 because, as we discussed last month, much of what you incur from a CAPEX perspective in a fiscal year is related to longer lead items. Those are sort of committed dollars, if you will.

Speaker #4: So, you know, first of all, consistent with our capital allocation priorities, we're going to continue to invest in the long-term growth of our business.

Speaker #4: And despite, the near-term headwinds that need that Bill just, highlighted, which we see as being primarily cyclical in nature, you know, we're co we're confident, in the longer-term growth trajectory of the portfolio.

Speaker #4: So we still believe that we need to invest in incremental capacity. again, the, the, the answer to that nuance is if we look at FY 26, we didn't adjust CAPEX for FY 26 because as we discussed last month, you know, much of what's in you incur from a CAPEX perspective in a fiscal year is related to longer lead items, and so, you know, those are sort of, you know, committed dollars, if you will.

Speaker #4: As we look beyond FY 2026, however, even though we do have confidence in the longer-term trajectory of the portfolio, we are being very mindful in looking at ways that we could slow down or avoid CAPEX, you know, if possible.

Blair Veenema: As we look beyond FY26, however, even though we do have confidence in the longer-term trajectory of the portfolio, we are being very mindful and looking at ways that we could slow down or avoid CAPEX, if possible. We don't have anything to share with you on that. As we said last month, as it relates to anything beyond FY26, we'll cover off on that later this year as we give guidance for FY27. Thank you. Next question today is coming from Rob Ottenstein from Evercore. Your line is now live.

Speaker #4: We don't have anything to share with you on that. As we said last month, as it relates to anything beyond FY26, we'll cover off on that.

Speaker #4: You know, later this year, as we give guidance for FY 2027.

Speaker #5: Thank you. Next question today is coming from Rob Ottenstein from Evercore. Your line is now live.

Speaker #8: Great. Thank you very much. I, I, I just wanna get a little bit more sense about, you know, what you mean by seeing more loyalty for Corona, and Modelo and particularly Corona, you know, if, if we just, you know, from the outside, without your data, you know, Corona, Corona Extra is, is down more.

Bill Newlands: Great, thank you very much. I just want to get a little bit more sense about, you know, what you mean by seeing more loyalty for Corona and Modelo, and particularly Corona. If we just, you know, from the outside, without your data, Corona Extra is down more than Coors Light or Miller Lite. Never seen that before. Corona is more general population. I think it's, what, 20% or 30% Hispanic. Just like to understand what you're seeing in terms of loyalty. Perhaps connected to that, very interesting movement within the Corona portfolio, right, with Corona Familiar doing actually extremely well and maybe actually a larger brand than we may think. Maybe give us a little bit of sense of how big Corona Familiar is, what you're seeing within the Corona portfolio, and what's the data that's telling you about increased loyalty for Corona. Thank you. Sure, Robert.

Speaker #8: Then Coors Light or Miller Lite, never seen that before. And Corona is more general population; I think it's what, 20% or 30% Hispanic. So, just like to understand what you're seeing in terms of loyalty, and then perhaps connected to that, you know, a very interesting movement within the Corona portfolio, right? With Corona Familiar doing actually extremely well, and maybe actually a larger brand than we may think.

Speaker #8: So maybe give us a little bit of a sense of how big Corona Familiar is, what you're seeing within the Corona portfolio, and what's the data that's telling you about, you know, increased loyalty for Corona.

Speaker #8: Thank you.

Speaker #4: Sure, Robert. As you would expect, we measure our brand health metrics consistently over time and analyze what the intent to buy is and what the purchase intentions are for all of our brands and businesses.

Bill Newlands: As you would expect, we measure our brand health metrics consistently over time and analyze what the intent to buy is, what the purchase intentions are for all of our brands and businesses. That's where we begin to talk about brand loyalty, what first choice consumers would have in buying within our franchise. Now, as you point out, Corona Extra has been somewhat challenged recently. The broader family has done very well. Corona Extra provides an exceptional halo for the overall brand family. Familiar is doing extraordinarily well and one of the top share gainers in the category. Sunbrew, as you probably know, is the number one new brand in dollars and the number four share gainer overall in the category this year. Corona Extra continues to provide the kind of halo for us for the broader market that has been very valuable for the overall franchise of Corona.

Speaker #4: That's where we begin to talk about brand loyalty and what first choice consumers would have in buying within our franchise. Now, as you point out, Corona Extra has been somewhat challenged recently.

Speaker #4: The broader family has done very well. Corona Extra provides an exceptional halo for the overall brand family. Familiars are doing extraordinarily well, as one of the top share gainers in the category, and Sun Brew, as you probably know, is the number one new brand in dollars and the number four share gainer overall in the category this year.

Speaker #4: So, Corona Extra continues to provide the kind of halo for us, for the broader market, that has been very valuable for the overall franchise of Corona.

Speaker #4: You'll also notice, as an example, Corona has been the focus of Major League Baseball. If you watch any of the playoffs, you probably would have noticed that Corona has been all over the baseball playoffs as the official import beer of Major League Baseball.

Bill Newlands: You'll also notice, as an example, Corona has been focused on Major League Baseball. If you watch any of the playoffs, you probably would have noticed that Corona has been all over the baseball playoffs as the official import beer of Major League Baseball. We continue to feel that Corona Extra is going to be an important part of our business going forward. It also, as you note, really is a tremendous halo for other SKUs within the franchise.

Speaker #4: So, we continue to feel that Corona Extra is going to be an important part of our business going forward. But it also, as you note, really is a tremendous halo for other SKUs within the franchise.

Speaker #5: Thank you. The next question is coming from Dara Moshinian from Morgan Stanley Investment Management. Your line is now live.

Blair Veenema: Thank you. Next question is coming from Dara Moshinian from Morgan Stanley Investment Management. Her line is now live.

Speaker #8: Hey, good morning. So, Bill, I just wanted to return to the first question. You know, in your response to the question and prepared remarks, you continue to emphasize that the recent beer depletion weakness you think has been caused more by macro factors.

Bill Newlands: Hey, good morning. Bill, I just want to return to the first question. In your response to the question and prepared remarks, you continue to emphasize that the recent beer depletion weakness you think is caused more by macro factors. Certainly understand there's a big macro component, but you don't seem to attribute much of it to other more secular factors on the beer category, including health and wellness, particularly with GOPs, cannabis substitution, lower consumption from younger consumers than past generations. Just how much impact do you think you're seeing from factors beyond the macro component? I know you emphasize your strong brand equity and your share gains, but these factors do seem to be impacting the beer category more broadly.

Speaker #8: Certainly, I understand there's a big macro component. But you don't seem to attribute much of it to other, more secular factors in the beer category, including health and wellness, particularly with GLPs.

Speaker #8: Cannabis substitution, lower consumption from younger consumers than past generations. You know, just how much impact do you think you're seeing from factors beyond the macro component?

Speaker #8: And I know you emphasize your strong brand equity and your share gains, but these factors do seem to be impacting the beer category more broadly.

Speaker #8: So, I just wanted to understand your thought process there as your thinking changed at all on those non-macro sort of drivers as you look at the trends in recent months.

Bill Newlands: Just wanted to understand your thought process there as your thinking changed at all on those non-macro sort of drivers as you look at the trends in recent months. If I can slip in in part B, just the corporate response to the weaker top line growth we're seeing, can you talk about strategy tweaks to drive top line growth within a tougher environment and any opportunities on further productivity beyond what you've already done as you think going forward here? Thanks. Sure. We continue to feel that the structural element is relatively minor in the scheme of things versus the cyclical element. As we've covered numerous times now, there just isn't a lot of evidence that GOP is having much impact whatsoever.

Speaker #8: And then if I can slip in, in part B, just the corporate response to the weaker top-line growth we're seeing, can you talk about strategy tweaks to drive top-line growth within a tougher environment?

Speaker #8: And any opportunities for further productivity beyond what you've already done as you think going forward here? Thanks.

Speaker #4: Sure. We continue to feel that the structural element is relatively minor in the scheme of things versus the cyclical element. As we've covered numerous times now, there just isn't a lot of evidence that GLP is having much impact whatsoever.

Speaker #4: I think cannabis could be, as you go forward, to be frank, because, you know, as consumers are constrained about their spending patterns, they make choices as to where they spend their discretionary funds.

Bill Newlands: I think cannabis could be, as you go forward, to be frank, because as consumers are constrained about their spending patterns, they make choices as to where they spend their discretionary funds. Again, today, that's also relatively minor in the scheme of things. Part of what you're seeing with our work, and Corona Sunbrew is a great example, is going after a younger legal drinking age, Gen Z consumer. Part of what we observed is consumers, particularly around spring break, were mixing orange juice and Corona. Our view was we could do something much better than that in real time, which we did. It's part of the reason why that is the number one dollar SKU this year and the number four share gainer in the category.

Speaker #4: But again, today, that's also relatively minor in the scheme of things. part of the part of what you're seeing with, with our work and Corona Sun Brew is a great example.

Speaker #4: Is going after a younger legal drinking age, Gen Z consumer. You know, part of what we observed is consumers, particularly around spring break, were mixing orange juice and Corona.

Speaker #4: Our view was that we could do something much better than that in real time, which we did. And it's part of the reason why that is the number one dollar SKU this year and the number four share gainer in the category.

Speaker #4: Relative to your question about the top line, you know, one of the things that you historically have seen, and other downturns within categories, is that some organizations pull back on their marketing spend.

Bill Newlands: Relative to your question about the top line, one of the things that you historically have seen in other downturns within categories is that some organizations pull back on their marketing spend. We have no intention whatsoever to do that. In fact, in many respects, we're spending more than we ever have. You've probably seen, as I mentioned on the prior question, Corona's presence in Major League Baseball, Modelo with the NFL and with college football has been very aggressively positioned. Pacifico is the number one voice in digital. I think the important point to all of that is we're continuing to invest in the long-term success of our business because we recognize at some point some of these socioeconomic elements will ease and we'll be in a great position to return to more traditional growth profiles that we've seen in the past.

Speaker #4: We have no intention whatsoever to do that. In fact, in many respects, we're spending more than we ever have. You probably saw, as I mentioned in the prior question, Corona's presence in Major League Baseball.

Speaker #4: Modelo, with the NFL and with college football, has been very aggressively positioned, and Pacifico, as the number one voice in digital. So I think the important point to all of that is we're continuing to invest in the long-term success of our business.

Speaker #4: Because we recognize that at some point, some of these socioeconomic elements will ease, we will be in a great position to return to more traditional growth profiles that we've seen in the past.

Speaker #4: Given that even in this tough environment, we continue to gain share in the market and have been the number one share gainer. So, hopefully that answers— that was a complex set of questions, but hopefully that answers them.

Bill Newlands: Given even in this tough environment, we continue to gain share in the market and have been the number one share gainer. Hopefully, that answers, that was a complex set of questions, but hopefully, that answers them.

Speaker #5: Thank you. Next question is coming from Bonnie Herzog from Goldman Sachs. Your line is now live.

Blair Veenema: Thank you. Next question is coming from Bonnie Herzog from Goldman Sachs. Her line is now live.

Speaker #1: Thank you. Good morning, everyone. I had a question on margins. I'd love to hear more color on the beer op margin expansion in the quarter.

[Analyst]: Thank you. Good morning, everyone. I had a question on margins. I'd love to hear more color on the beer op margin expansion in the quarter, I guess, as well as key headwinds to margins in the back half, considering your guidance implies a decent step down versus 1H. Thanks.

Speaker #1: I guess as well as key headwinds to margins in the back half, considering your guidance implies a decent step down versus Q1. Thanks.

Speaker #4: Yeah, thanks, Bonnie. I mean, I’d say we feel pretty good about the margin profile that we laid out last month in terms of what our expectation is for the year.

Blair Veenema: Yeah, thanks, Bonnie. Look, I mean, I'd say we feel pretty good about the margin profile that we laid out last month in terms of what our expectation is for the year. If I think about all the elements to your question, let me just start by talking about headwinds for the second half. First of all, the second half of the year, as you know, is always kind of our lower volume year. Even though we change guidance for the full year, that doesn't change our expectations for how the first half of the year comes in versus the second half of the year from a volumetric standpoint. As you know, in the second half of the year, that's, as I say, the lower volume half. It's also when we do some of our maintenance.

Speaker #4: I, if I think about all the elements to your question, and let me just start by talking about, you know, headwinds in the, for the second half.

Speaker #4: You know, first of all, the second half of the year, as you know, is always kind of our lower volume year. And, even though we changed guidance for the full year, that doesn't change our expectations for how the first half of the year comes in versus the second half of the year.

Speaker #4: From a volume metric standpoint, as you know, in the second half of the year, that's, as I say, the lower volume half. It's also when we do some of our maintenance.

Speaker #4: So just traditionally, that's gonna be when we have our lowest margins, of the fiscal year. as, as I think about, you know, again, sticking on margin, the h head, headwinds that we that we noted last, last month, you know, still remain.

Blair Veenema: Just traditionally, that's going to be when we have our lowest margins of the fiscal year. As I think about, again, sticking on margin, the headwinds that we noted last month still remain. We have about 100 basis points of margin headwinds related to fixed costs and incremental tariffs. We have about 60 basis points related to keeping, as Bill just mentioned, keeping our marketing investment in line. Oh, by the way, I misspoke just now. There's 100 basis points with fixed overhead, and then there's another 60 points on incremental margins. Those are some pretty big, pretty big headwinds. They get offset a little bit by some lower comp and benefits in the second half of the year. That really is the margin profile for the full year. Thank you. Next question today is coming from Chris Carey from Wells Fargo Security. Your line is now live.

Speaker #4: We have, about, you know, 100 basis points of margin headwinds related to fixed costs and incremental tariffs. We have about 60 basis points related to, keeping, as Bill just mentioned, keeping our marketing investment, you know, in line.

Speaker #4: Oh, by the way, I misspoke just now. There are 100 basis points with fixed overhead, and then there's another 60 points on incremental margins.

Speaker #4: So that's, you know, those are some pretty big headwinds. They get offset a little bit by some lower comp and benefits in the second half of the year.

Speaker #4: But that really is the margin profile for the full year.

Speaker #5: Thank you. Next question today is coming from Chris Carey from Wells Fargo Securities. Your line is now live.

Speaker #8: Hey, everyone. Garth, just a follow-up. Are you seeing a pickup in inflation in the back half, or is that specifically around the seasonal volume assumptions?

[Analyst]: Hey, everyone. Garth, just to follow up, are you seeing a pickup in inflation in the back half, or is that specifically around the seasonal volume assumptions? Just to clarify something on Bonnie's question. The question that I had today was actually around the wine and spirits margins. I think going to the second half of the year, you need to believe that these margins are going to turn positive, more than a little positive, to get to the full-year guidance. What do we have to believe in improvement from the first half into the back half to see that level of improvement to get to that full-year outlook, maybe some of the key drivers? As you think about going into fiscal 2027, there was an expectation that this business could return to a low 20% operating margin, which seems to be embedded in consensus expectations.

Speaker #8: Just to clarify something on Bonnie's question. But then the, the question that I had today was actually around the wine and spirits margins. I think going to the second half of the year, you need to believe that these margins are gonna turn positive, more than a little positive to get to the full year guidance.

Speaker #8: So, what do we have to believe in improvement from the first half into the back half to see that level of improvement to get to that full year outlook?

Speaker #8: Maybe some of the key drivers. And then, as you think about going into fiscal 2027, you know, there was an expectation that this business could return to a low 20s operating margin, which seems to be embedded in consensus expectations.

Speaker #8: Is that still the right way to think about it? And again, I would ask it in a similar vein as the back half of this year.

[Analyst]: Is that still the right way to think about it? I would ask it in a similar vein as the back half of this year. What do we have to believe that outcome of substantial margin improvement in fiscal 2027 is achieved? Thanks so much.

Speaker #8: What do we have to believe that the outcome of substantial margin improvement in fiscal 2027 is achieved? Thanks so much.

Speaker #4: Sure. Just so just on the first, question related to the beer margins to follow up to Bonnie's question. We're not really seeing any tick up in inflation in the, in the second half of the year.

Blair Veenema: Sure. Just on the first question related to the beer margins, to follow up to Bonnie's question, we're not really seeing any tick up in inflation in the second half of the year. It's just the drivers that I outlined. As it relates to wine and spirits for this fiscal year and the improvement that you'll see in the second half of the year, a couple of things are going on there which make the full year and certainly the first half of the year a bit messy, if you will. First of all, the converse of what I laid out for beer is true for wine and spirits, which is the bulk of our volume and sales occur in the second half of the year. We will see benefits from additional volume in the second half.

Speaker #4: So it really is just the drivers that I outlined as it relates to wine and spirits for this fiscal year and the improvement that you'll see in the second half of the year. You know, a couple of things that are going on there which make the full year, and certainly the first half of the year, a bit, you know, messy, if you will.

Speaker #4: So, first of all, the converse of what I laid out for beer is true for wine and spirits, which is the bulk of our volume, and sales occur in the second half of the year.

Speaker #4: So, we will see benefits from, you know, additional volume in the second half. That also tends to be when you see vintage releases related to our DTC business, which tend to lead to higher sales and higher margins.

Blair Veenema: That also tends to be when you see vintage releases related to our DTC business, which tend to lead to higher sales and higher margins. Back to the messiness of the first half of the year, as we laid out at the beginning of this fiscal year, there are a number of factors driving performance this year specific to the first half related to distributor payments, as well as some post-transaction inventory trips between ourselves and with our distributor partners. Therefore, that's what's made the first half of the year sort of look like it is and why we feel confident that we can turn that in the second half of the year and achieve the operating profit that we laid out in April.

Speaker #4: And then back to the messiness of the first half of the year. As we laid out at the beginning of this fiscal year, there are a number of factors driving performance this year, specific to the first half related to distributor payments, as well as some post-transaction inventory trips between ourselves and with our distributor partners.

Speaker #4: And, and therefore, that's what's made the first half of the year, sort of look like it is and, and why we feel confident that we can, you know, turn that in the second half of the year and achieve the operating profit that we laid out, you know, in April.

Speaker #4: And just to add on to that, you know, we made clear at the beginning of the year that the focus in the wine and spirits business this year was to get the top line in line.

Bill Newlands: To add on to that, we made clear at the beginning of the year that the focus in the wine and spirits business this year was to get the top line in line and to beat the market. We have now beaten the market for six straight months. Our business in Q2, very similar to Q1, on an apples-to-apples basis, was up 2%, driven by Kim Crawford and Meiomi. Meiomi, you may remember, was a brand we started from scratch several years ago. The 12-week numbers in Circana show Ruffino up 2 points, The Prisoner up 4, Unshackled up 11, and Harvey & Harriet up roughly 23. While we're not going to give any specific guidance yet for fiscal 2027, I think we're very pleased with the development of the top line in the wine and spirits business.

Speaker #4: And to beat the market. We have now beaten the market for six straight months. Our business in Q2, very similar to Q1, on an apples-to-apples basis was up 2%.

Speaker #4: Driven by Kim and Mekampo. Mekampo, you may remember, was a brand we started from scratch several years ago. The 12-week numbers in Sercana show Rafino up 2 points, the prisoner up 4 on Shaka level 11, and Harvey and Harriet up roughly 23.

Speaker #4: So while we're not going to give any specific guidance yet for fiscal 2027, I think we're very pleased with the development of the top line in the wine and spirits business.

Speaker #4: And we've returned that business to a strong share-gaining position. We have been presenting those results for the last several months, so we feel pretty comfortable with how that is developing.

Bill Newlands: We've returned that business to a strong share-gaining position and have been presenting those results for the last several months. We feel pretty comfortable with how that is developing and how the team has executed against that strategy.

Speaker #4: And how the team has executed against that strategy.

Speaker #5: Thank you. Next question today is coming from Andrea Teixeira from JP Morgan. Your line is now live.

Blair Veenema: Thank you. Next question today is coming from Andrea Teixeira from JP Morgan. Your line is now live.

Speaker #8: Hey, good morning. This is Drew Levine on for Andrea. Thanks for taking our question. I wanted to ask about the beer inventory rebalance. Maybe you could provide some context on inventory on hand at distributors now versus before the rebalance.

[Analyst]: Hey, good morning. This is Drew Levine on for Andrea. Thanks for taking our question. I wanted to ask on the beer inventory rebalance. Maybe you could provide some context on inventory on hand at distributors now versus before the rebalance and what gives you confidence that this was sort of more of a one-time event, I guess, rather than something that we should be more concerned about going forward. With that visibility that ships and depletes, I think the guidance is to largely track in the second half. I think typically there's a bit more depletes second half versus first half. Just any comments on visibility to that? Thanks.

Speaker #8: A—and what gives you confidence that this was sort of more of a one-time event, I guess, rather than something that we should be more concerned about going forward.

Speaker #8: And with that, visibility that ships and depletes, I think the guidance is to largely track. In the second half, I think typically there's a bit more depletes in the second half versus the first half.

Speaker #8: So just any comments on visibility to that? Thanks.

Speaker #4: So look, I, I can start and then Bill, Bill can weigh in, so first of all, you know, the shipment dipi ship dip trip that happened, you know, in Q2 related to our beer business, was a result of a couple of things.

Blair Veenema: I can start and then Bill can weigh in. First of all, the ship dip trip that happened in Q2 related to our beer business was a result of a couple of things. One was that, as typical with every year, we tend to ship in more in Q1 and Q2 ahead of the key summer selling season. That is just normal operating procedure. This year, as we went through the summer selling season, the takeaway was not in line with expectations. Therefore, distributors had a little bit more than expected as we exited this summer. The second thing that drove it is the ship dip trip. We typically overship in the first half of the year to ensure that there is product on the shelves, and then there is a little bit of rebalancing that occurs in the second half of the year, usually in Q3.

Speaker #4: You know, one was that, as typical with every year, we tend to ship more in Q1 and Q2 ahead of the key summer selling season.

Speaker #4: So, that's just normal operating procedure. This year, as we went through the summer selling season, you know, the takeaway wasn't in line with expectations.

Speaker #4: Therefore, distributors had a little bit more, than, than expected as we e-exited this summer. Now, the second thing that drove it is the, the ship dip trip is that again, we typically overship in the first half of the year, to ensure that there's product on sh on the shelves.

Speaker #4: And then there's a little bit of rebalancing that occurs in the second half of the year, usually in Q3. So, we pulled that rebalancing into Q2 versus Q3.

Blair Veenema: We pulled that rebalancing into Q2 versus Q3. That is really what drove it. As we sit there and look at inventory levels with distributors, they are at a good spot right now. We feel good about where our inventory levels are relative to where they are historically. It is important for us to note that the ship, the rebalancing of inventories, really occurred strictly with distributors. There has been no retailer destocking. We continue to gain PODs in shelf space. We have very good confidence in our ability to continue to generate significant shelf share gains, as one would expect for a portfolio that is growing, as Bill highlighted before, in 49 out of 50 states and with the number one beer brand by dollar sales. We feel good about where we are for our inventory levels.

Speaker #4: So that's really what drove it. As we sit there and look at inventory levels with distributors, they're at a good spot right now. We feel good about where our inventory levels are relative to where they are historically.

Speaker #4: And I think it's important for us to note that the ship, the rebalancing, the inventory has really occurred strictly with distributors. There's been no retailer destocking.

Speaker #4: We continue to gain PODs and shelf space. We have very good confidence in our ability to continue to generate significant shelf share gains.

Speaker #4: As one would expect for a portfolio that's growing as, as, as Bill highlighted before in 49 out of 50 states. and with the number one beer brand by dollar sales, so, you know, we feel good about where we are, for, our inventory levels.

Speaker #4: And that’s why we have confidence that for the balance of the year, our shipments and depletions will be aligned with one another.

Blair Veenema: That is why we have confidence that for the balance of the year, shipments and depletions will be aligned with one another. Thank you. Next question is coming from Bill Kurt from Roth Capital Partners. Your line is now live.

Speaker #5: Thank you. Next question is coming from Bill Clark from World Capital Partners. Your line is now live.

Speaker #9: Hey, good morning, everybody. So, price pack architecture was a big focus, you know, before this recent deceleration. So I guess, how has the deceleration impacted the plans for different pack sizes and price points?

[Analyst]: Good morning, everybody. Price pack architecture was a big focus before this recent deceleration. How has the deceleration impacted the plans for different pack sizes and price points? If you had been further along in those price pack architecture plans, do you think depletions performance would have been better?

Speaker #9: And maybe if you had been further along in those Price Pack Architecture plans, do you think depletions performance would have been better?

Speaker #4: Well, price pack architecture is something that we've said we're going to spend a fair amount of time on. You know, if we had known all the socioeconomic issues, would we have gotten that out sooner?

Bill Newlands: Price pack architecture is something that we've said we're going to spend a fair amount of time on. If we had known all the socioeconomic issues, would we have gotten that out sooner? I hope the answer would have been yes. The reality is this is a good long-term play for the business. Many of you have heard us talk before. We think there are some exceptionally good businesses at putting that together, meaning when you go in a store, you have an opportunity, no matter how much money you have to spend, you have a product available to you. Our focus on price pack architecture and smaller sizes and things of that ilk makes sure that we would have something that our consumer would be able to buy depending on what they have available to them.

Speaker #4: I hope the answer would have been yes, but the reality is this is a good long-term play for the business. You know, many of you have heard us talk before, we think there are some exceptionally good businesses at putting that together. Meaning, when you go in a store, you have an opportunity, no matter how much money you have to spend, to have a product available to you.

Speaker #4: our focus on price pack architecture and smaller sizes and things of that ilk, make sure that we would have something that our consumer would be able to buy depending on what they have available to them.

Speaker #4: So, we're working aggressively on that in a number of fronts and with a number of brands. That process is going to continue because we think that's not only important now, but that's also important for the long run as well.

Bill Newlands: We're working aggressively on that in a number of fronts and with a number of brands. That process is going to continue because we think that's not only important now, but that's also important for the long run as well.

Speaker #5: Thank you. The next question is coming from Filippo Filormi from Citigroup. Your line is now live.

Blair Veenema: Thank you. Next question is coming from Filippo Filormi from Citigroup. Your line is now live.

Speaker #10: Hi, good morning, everyone. I wanted to ask first about the beer margin and beer cost savings. Particularly, you realized $65 million in cost savings in Q2.

[Analyst]: Hi, good morning, everyone. I wanted to ask first on the beer margin and beer cost savings, particularly you realize $65 million in cost savings in Q2, $105 million year to date. Any sense of what's the target for the year, and if you can give a little bit more color on the opportunities there on the beer cost saving front? Just to follow up on the prior question on tariffs, can you give us a sense of how much you realized in the first half in terms of tariff headwinds and how much to expect for the balance of the year? Thank you.

Speaker #10: 105 million year to date. Any sense of, w h what's the target for the year? And if you can give a little bit more color on the, the opportunities there on the beer cost saving front.

Speaker #10: And then just a follow-up on the prior questions. On tariffs, can you give us a sense of how much you realized in the first half, in terms of tariff headwinds, and how much to expect for the balance of the year?

Speaker #10: Thank you.

Speaker #4: Yeah, so just, just on the cost savings, you know, first of all, I'd say that this is just, you know, we continue to reap the benefits of this evolution from being a builder to an operator.

Blair Veenema: Yeah, just on the cost savings, first of all, I'd say that this is just, we continue to reap the benefits of this evolution from being a builder to an operator. As you highlighted, since our investor day a couple of years ago, we've delivered over $500 million worth of cost savings. Again, as you noted, so far this year, we've delivered over $100 million in savings. We continue to find ways to make our operations more efficient. A lot of that so far is focused on supplier and sourcing optimization and material and cost innovation. Included in that would be our move to 60-foot rail cars and our double stacking within rail cars, as well as a big initiative around suppliers and terms, if you will. This is going to continue to be a focus for us over time.

Speaker #4: You know, as you highlighted, since our Investor Day a couple of years ago, we've delivered over $500 million worth of cost savings.

Speaker #4: And again, as you noted, so far this year, we've delivered over $100 million in savings. You know, we continue to find ways to make our operations more efficient.

Speaker #4: a lot of that so far is focused on supplier and sourcing optimization and, and material and, and, cost innovation. You know, included in that would be our, our, our move to 60-foot rail cars and our double stacking, within rail cars.

Speaker #4: As well as a big initiative around suppliers and terms, if you will. So this is going to continue to be a focus for us over time.

Speaker #4: You know, we continue to think that there will be opportunities for us in logistics and manufacturing optimization. You know, we don't provide quarterly or annual guidance related to our cost savings initiatives.

Blair Veenema: We continue to think that there will be opportunities for us in logistics and manufacturing optimization. We know we don't provide quarterly or annual guidance related to our cost savings initiatives, but we will continue to provide updates on a quarterly basis once we achieve those savings. Thank you. Next question is coming from Carlos Laboy from HSBC. Your line is now live.

Speaker #4: But we will continue to provide updates on a quarterly basis once we achieve those savings.

Speaker #5: Thank you. Next question is coming from Carlos Laboy from HSBC. Your line is now live.

Speaker #10: Yes, thank you, everyone. Bill, maybe you can go back a little bit and talk to us about the brand positioning of Corona.

[Analyst]: Yes, thank you, everyone. Bill, maybe you can go back a little bit and talk to us about the brand positioning of Corona itself. You know, how might you be refreshing or tweaking it? The reason I'm asking the question is because, you know, we've had over 40 years of beach, rest, and relaxation. I'm wondering, has that become too sedentary an interpretation of beach for a premium beer consumer that's turning to more active lifestyle positionings? For example, Michelob Ultra, right? Even in other countries where the Corona brand is doing very well, it's sort of been reinterpreting beach more as an active lifestyle and as a regeneration concept. What are your thoughts on how you tweak that brand if it needs to be?

Speaker #10: Itself, you know, how might you be refreshing or tweaking it? And the reason I'm asking the question is because, you know, we've had over 40 years of beach rest and relaxation.

Speaker #10: And, and I'm wondering, has that become too sedentary? An interpretation of beach for premium beer consumers that's turning to a more active lifestyle positioning. So, for example, Michelob Ultra.

Speaker #10: Right? And even in other countries, where the Corona brand is doing very well, it's sort of been about reinterpreting the beach more as an active lifestyle and as a regeneration concept.

Speaker #10: What are your thoughts on how you tweak that brand if it needs to be?

Speaker #4: So, we're going to start. We didn't answer the last half of the last question, Garth. It's going to cover the tariff, and then I'll come back and answer your question, Carlos.

Bill Newlands: We did not answer the last half of the last question. Garth's going to cover the tariff, and then I'll come back and answer your question, Carlos.

Speaker #11: Yeah, so just on the tariffs too, you know, to just to be clear on that, right? So in our beer business, we're expecting the tariff impact to be about $70 million this year.

Blair Veenema: Yeah, just on the tariffs, just to be clear on that, right? In our beer business, we're expecting the tariff impact to be about $70 million this year. On the wine business, for that to be about $20 million. I would say in terms of how that occurs throughout the year, that will largely track volume. That's the way to think about the impact on a half-year to half-year basis.

Speaker #11: And, on the wine business for that to be about, you know, 20 million dollars. I would say that in terms of how that, how that occurs throughout the year, I mean, that, that will largely track, you know, largely track volume.

Speaker #11: So that's the way to think about the impact on a half-year to half-year basis.

Speaker #5: So progressing to the current question relative to Corona. You may have noticed the evolution this year of the Corona advertising proposition to really return to the focus being on the beer. I would argue that we probably got a little too celebrity-heavy for a window of time.

Bill Newlands: Progressing to the current question relative to Corona, you may have noticed the evolution this year of the Corona advertising proposition to really return to the focus being on the beer. I would argue that we probably got a little too celebrity heavy for a window of time, and we've brought that Corona essence right back to where its iconic value has been, which is the beach. The beach lifestyle, I would argue, fits into many things that consumers are looking for today. They're looking for refreshment. That's first and foremost what Corona is known for. They are looking for things that are different in experimentation, particularly a younger consumer. I'd say Sunbrew is a great example of us playing right into that speech and attitude, and that goes right to a more active lifestyle that Corona Sunbrew has been presented against.

Speaker #5: And we've brought that Corona essence right back to where its iconic value has been, which is the beach. Now, the beach lifestyle, I would argue, fits into many things that consumers are looking for today.

Speaker #5: They are looking for refreshment. That's first and foremost what Corona is known for. They are looking for different things that are different and experimentation. I particularly see a younger consumer.

Speaker #5: I'd say if Sun Brew is a great example of us playing right into that, that speech and attitude, and that goes right to a more active lifestyle, that Corona Sun Brew has been presented against.

Speaker #5: So I think the important part for this is, you know, one of the things that both Corona and Modelo, and currently Pacifico, is developing is we haven't flip-flopped our positioning over time.

Bill Newlands: I think the important part for this is, you know, one of the things that both Corona and Modelo, and currently Pacifico is developing, is we haven't flip-flopped our positioning over time. Many organizations have a tendency to flip-flop their positioning every couple of years whenever there's a change of brand management. Our approach has not been that. Our approach is to stay focused on what we feel are the strong essences of those brands with some minor evolution as part of the marketing development. I would argue Sunbrew is a great example of where we can leverage that sort of beach lifestyle and refreshment value of Corona Extra into a new and exciting piece of business for us in the form of Sunbrew.

Speaker #5: You know, many organizations have a tendency to flip-flop their positioning every couple of years, whenever there's a change in brand management. Our approach has not been that.

Speaker #5: Our approach is to stay focused on what we feel are the strong essences of those brands, with some minor evolution as part of the marketing development.

Speaker #5: And I would argue Sun Brew is a great example of where we can leverage that sort of beach lifestyle and refreshment value of Corona Extra into a new and exciting piece of business for us in the form of Sun Brew.

Speaker #5: Thank you. Next question today is coming from Como Guardiola from Jefferies. Your line is now live.

Blair Veenema: Thank you. Next question today is coming from Carmel Gondwala from Jefferies. Your line is now live.

Speaker #12: Hi, I'd like to follow up on two questions. The first is you have these obvious economic challenges. In addition to the Hispanic consumer, if you're twice the share with Gen Z, Gen Z also has twice the amount of unemployment.

[Analyst]: I'd like to follow up on two questions. The first is, you know, you have these economic challenges in addition to the Hispanic consumer. If you're twice the share with Gen Z, Gen Z also has twice the amount of unemployment. It sounds like your responses to what to do is to keep up on marketing and such, but is there anything you're looking to do to make it more affordable, get them to go back out? Not necessarily on the marketing and the branding side. They sound fine there, but rather on what can you do about it if they don't have as much money, they're not as willing to go out? The second question on margins, I get the 160 bps of sort of natural drag, what you talked about, but the spread between depletes and shipments isn't expected to be nearly as substantial.

Speaker #12: It sounds like your responses to what to do is to keep up on marketing and such. But is there anything you're looking to do to make it more affordable, get them to go back out, just, you know, not necessarily on the marketing and the branding side? Things sound fine there, but rather on what can you do about it if they don't have as much money and they're not as willing to go out?

Speaker #12: And then the second question on margins. I get the 160 bips of, sort of, natural drag, what you talked about. But the spread between depletes and shipments should, you know, is expected to be nearly as substantial.

Speaker #12: So, I'm just curious why the margin guidance is still maybe a bit lower than we would have guessed, given to beat this quarter. Thanks.

[Analyst]: I'm just curious why the margin guidance is still maybe a bit lower than we would have guessed given to beat this quarter. Thanks.

Speaker #4: Sure. I'll take the first half, Garth. You can take the second, relative to the whole question of affordability, with where consumers are somewhat constrained.

Bill Newlands: Sure. Why don't I take the first half, Garth? You can take the second. Relative to the whole question of affordability with where when consumers are somewhat constrained, you probably all are quite aware, we have repositioned Modelo Oro, because our belief is the light beer consumer is looking for a bit of a different value proposition than it would be for Corona or Modelo as an example. We've done the same now with Premier, and we're positioning that again at a somewhat lower price point from where those have been historically. We believe those are going to be valuable. First of all, it speaks to where the consumer of high-end light beers wants to spend and at the price point they want to spend. I think that's going to position us well. Early days on Oro, which started earlier, have been quite positive.

Speaker #4: You probably all are quite aware, we have repositioned Oral, Modelo Oral, because our belief is that the light beer consumer is looking for a bit of a different value proposition than it would be for core Modelo, as an example.

Speaker #4: We've done the same now with Premier, and we're positioning that again at a somewhat lower price point from where those have been historically. We believe those are going to be valuable.

Speaker #4: First of all, it speaks to where the consumer of high-end light beers wants to spend and at the price point they want to spend.

Speaker #4: And I think that's going to position us well. Early days on Oral, which started earlier, have been quite positive. We're pleased to see that development both in terms of consumer takeaway as well as in terms of our ability to get more features and displays against that business.

Bill Newlands: We're pleased to see that development both in terms of consumer takeaway as well as in terms of our ability to get more features and displays against that business. The last thing I would say, and it relates to one of the prior questions, is the price pack architecture. We briefly touched on that, but having the opportunity for the consumer who is financially constrained to find one of our iconic brands at a price point which they can afford at the current time is an important part of why price pack architecture is one of our key focuses now and will be going forward.

Speaker #4: The last thing I would say, and it relates to one of the prior questions, is the price pack architecture. We briefly touched on that, but having the opportunity for the consumer who is financially constrained to find one of our iconic brands at a price point which they can afford at the current time is an important part of why price pack architecture is one of our key focuses, now and will be going forward.

Speaker #4: Yeah, and, as it relates to, you know, the margin profile, could you reiterate what we talked about earlier, just around, you know, the first half versus the second half? The second half always being a lower margin profile.

Blair Veenema: Yeah, as it relates to the margin profile, just to reiterate what we talked about earlier, just around the first half versus the second half. Second half always being a lower margin profile as it relates to lower volume through our breweries, as well as that's when we do our normal maintenance CAPEX. Thank you. As a reminder, if you'd like to be placed into question two, please press star one on your telephone keypad. In the interest of time, we ask that you please ask one question. Our first question today is coming from Kevin Grundy. Our next question is coming from Kevin Grundy from BNP Paribas. Your line is now live.

Speaker #4: As it relates to lower volume through, you know, our breweries, as well as that's when we do our normal, you know, maintenance CAPEX.

Speaker #5: Thank you. As a reminder, if you'd like to be placed into the question queue, please press *1 on your telephone keypad. In the interest of time, we ask that you please ask one question.

Speaker #5: Our first question today is coming from Kevin Grundy from or next question, I should say, is coming from Kevin Grundy from BNP Paribas. Your line is now live.

Speaker #8: Good morning. Thank you for the question, guys. I wanted to ask about the suitability of the 39 to 40 percent beer operating margin target. I think there are a lot of questions among investors about that and the sustainability of it.

[Analyst]: Great morning. Thanks for the question, guys. I wanted to ask about the suitability of the 39% to 40% beer operating margin target. I think there's a lot of questions among investors about that and the sustainability of it. Very clear, I guess, in terms of the positioning of management in terms of its cyclical and volumes are going to come back. What if they don't? What if volumes stay down low single digits? A couple of important points of context here. I think for a really long time, as you guys are well aware, volumes are outstanding, up high single digits. There's a certain degree of operating leverage in the business that you're able to sustain the 39% to 40%, but now it's down and potentially it could stay down.

Speaker #8: Very clear, I guess in terms of positioning of, of, of management in terms of it's, it's cyclical and volumes are gonna come back. But what if they don't?

Speaker #8: Like, what if volumes stay down, low single digits? You know, and a couple important points of context here. I think for a really long time, as you guys are well aware, volumes were outstanding, up high single digits.

Speaker #8: There's a certain degree of operating leverage in the business that we're, you're able to sustain the 39 to 40. But now it's down, and potentially it could stay down.

Speaker #8: And I think there was a worry over a long period of time. As you guys are well aware, it was a constraint on the multiple, and that is the weak volume trends in the category, which had been in decline for the better part of, you know, 15 years.

[Analyst]: I think there was a worry over a long period of time, also as you guys are well aware, it was a constraint on the multiple, and that is the weak volume trends in the category, which had been in decline for the better part of, you know, 15 years. There was always a worry that you were going to get this mean reversion for Constellation Brands. How long can they continue to gain share? It's all kind of a big wind-up for here we are, category volumes are down mid-single, you guys are doing better than that, and the pace of share gains have slowed. What is the, what's, how plausible is it that you can sustain that level of margin if you're going to be facing year after year operating deleverage of volumes down sort of low single digits?

Speaker #8: And there was always a worry that you were going to get this mean reversion for Constellation. How long can they continue to gain share? So that's all kind of a big wind-up for here we are: category volumes are down, mid-single; you guys are doing better than that, and the pace of share gains has slowed.

Speaker #8: But what is the, what's, what's how plausible is it that you can sustain that level of margin if you're going to be facing year after year operating deleverage of volumes down sort of low single digits?

Speaker #8: So sorry for all of that, but I appreciate your thoughts. Thank you very much.

[Analyst]: Sorry for all of that, but I'd appreciate your thoughts. Thank you very much.

Speaker #4: No, that's it. Tha-thanks for the question, right? So, like, look, you know, 39 to 40 percent operating margins, you know, have been best in class. And, and even, you know, where we're gonna be this year with some deleveraging, we'll still have best in class operating margins in all beverage alcohol.

Blair Veenema: No, thanks for the question, right? Look, you know, 39% to 40% operating margins have been best in class. Even where we're going to be this year with some deleveraging, we'll still have best in class operating margins in all of beverage alcohol, certainly within beer. As we think about the impact going beyond FY26, I think we've been really clear that we're not in a position where we want to give guidance beyond FY26 at this point. We want to see how the macroeconomic and socioeconomic conditions play out and then see how the consumer responds to that. Then we'll have a better sense for where margins go from here. Obviously, there are multiple things that will go into our margin profile, inclusive of depreciation that comes online with some of the investments that we've made and will make.

Speaker #4: Certainly within beer. As we think about the impact going beyond FY 2026, I mean, I think we've been really clear that, you know, we're not in a position where we want to give guidance beyond FY 2026 at this point.

Speaker #4: We want to see how the macroeconomic and socioeconomic conditions play out and then see how the consumer responds to that. You know, and then we'll have a better sense for where margins go from here.

Speaker #4: You know, obviously there are multiple things that will go into our margin profile, inclusive of depreciation that comes online with some of the investments that we've made and will make.

Speaker #4: as I as I mentioned earlier, we're looking at ways, to or we're reviewing our, our footprint, both our current footprint and our expected footprint to see what the opportunities are there.

Blair Veenema: As I mentioned earlier, we're looking at ways to, or we're reviewing our footprint, both our current footprint and our expected footprint to see what the opportunities are there. We have a robust savings agenda every year that helps margins and certainly offsets things like inflation. Again, we do think that we'll return to growth, and that will be beneficial for margins going forward. There are a lot of things that the normal headwinds and the normal tailwinds should be available to us going forward. We'll provide more color on where we think margins are as we go through this year and again see how the environment plays out and how the consumer responds. Thank you. Next question is coming from Chris Pitcher from Rothschild and Company Redburn. Your line is now live.

Speaker #4: You know, we have a robust savings agenda every year that helps, you know, margins and certainly offsets things like inflation. Again, we do think that we'll return to growth, and that will be beneficial for margins going forward.

Speaker #4: So there are a lot of things, you know, that the normal headwinds and the normal tailwinds should be available to us going forward.

Speaker #4: And, but we'll provide more color on where we think margins are as we go through this year. And again, see how the environment plays out and how the consumer responds.

Speaker #5: Thank you. Next question is coming from Chris Pitcher from Rothschild & Company Red Barn. Your line is now live.

Speaker #13: Thank you very much. Can I ask a question about the wine and spirits in the second half? I mean, it's obviously quite difficult trying to compare against a base that's disrupted by the divestments.

[Analyst]: Thank you very much. Could I ask a question about the wine and spirits in the second half? It's obviously quite difficult trying to compare against a base that's disrupted by the divestitures. Q3 last year was a big destocking quarter. Based on the positive depletions in the current quarter, is it a fair assumption to assume that inventories are at a good level at your wholesalers? Therefore, you could see quite a benefit in the third quarter just from a normalization of destocking. Thank you.

Speaker #13: But Q3 last year was a, a big destocking quarter. And, and based on the positive defl depletions in the current quarter, I it is it a fair assumption to assume that inventories are at a good level at your wholesalers, and therefore you could see quite a, a benefit in the third quarter just from a, a normalization of, destocking?

Speaker #13: Thank you.

Speaker #4: Yeah, our, our inventory levels, and our wine and spirits business are in a, quite a good spot. You know, part of part of what you heard Garth speak of earlier which was some of the distributor alignment after the after the divestiture, part of what we focused our attention on is to getting, and making sure that our inventory levels, of our, ongoing business were, were in the right spot.

Bill Newlands: Yeah, our inventory levels in our wine and spirits business are in quite a good spot. Part of what you heard Garth speak of earlier, which was some of the distributor alignment after the divestiture, part of what we focused our attention on is to getting and making sure that our inventory levels of our ongoing business were in the right spot. They are. Again, our focus at this point, so I don't think inventory is going to be an issue going forward in the least. We're very focused on continuing to win in the market as we have for the last several months based on the strong performance of some of our critical brands like The Prisoner, Kim Crawford, Ruffino, and Meiomi in particular. That's really going to be the continuing focus of that business, as we said it would be at the beginning of this fiscal year.

Speaker #4: And, and they are again our focus at this point, so I don't think inventory is going to be an issue going forward in the least.

Speaker #4: But we're very focused on continuing to win in the market, as we have for the last several months, based on the strong performance of some of our critical brands like The Prisoner, Kim Crawford, Ruffino, and Méthode Champenoise in particular.

Speaker #4: So, that’s really going to be the continuing focus of that business, as we said it would be at the beginning of this fiscal year.

Speaker #5: Thank you. Next question is coming from Robert Moscow from TD Calendar. Your line is now live.

Blair Veenema: Thank you. Next question is coming from Robert Moskow from TD Cowen. Your line is now live.

Speaker #14: Hi, good morning. This is Victor on for Rob Moscow. I want to ask about the feasibility of the 1% to 2% pricing algorithm.

[Analyst]: Hi, good morning. This is Victor on for Rob Moscow. I want to ask about the feasibility of the 1-2% pricing algorithm. You know, given the macro pressures around the Hispanic consumer, are these price increases more in low Hispanic markets? Also, on the negative NIX impact from the prepared remarks, could you give some more color on what this was from? Could this be from, you know, Corona Familiar's strong demand and the brand's larger model size?

Speaker #14: You know, given the macro pressures around the Hispanic consumer, are these price increases more in low Hispanic markets? And also, on the negative mix impact from the prepared remarks, could you give some more color on what this was from?

Speaker #14: Could this be from, you know, Corona Familiar's strong demand and the brand's larger model size?

Speaker #4: So our expectation around pricing is what we have always done, which is we look at it skew by skew, market by market, and we still expect one to two to be what our overall delivery will be over the course of this fiscal year.

Bill Newlands: Our expectation around pricing is what we have always done, which is we look at it SKU by SKU, market by market. We still expect 1 to 2% to be what our overall delivery will be over the course of this fiscal year. A lot of that goes right back to what we've said before, which is there are pockets of opportunity, and we go after those pockets of opportunity. I think a great example, and I'd be remiss if I didn't point this out, that as Garth Hankinson mentioned earlier, Modelo Especial remains the number one top selling beer by dollars in the U.S. by track channels. It's at a roughly 10% share, and that's two full share points ahead of the next largest brand. Some of that also translates over into the on-premise. The on-premise has gone from number five to number two in terms of draft.

Speaker #4: I again, there a lot of that de goes right back to what we've said before, which is there are pockets of opportunity. and we go after those pockets of opportunity.

Speaker #4: I think a great example, and I would be remiss if I didn't point this out, is that, as Garth mentioned earlier, Modelo, especially, remains the number one top-selling beer by dollars in the United States by tracked channels.

Speaker #4: It's at a roughly 10% share, and that's two full share points ahead of the next largest brand. Some of that also translates over into the on-premise.

Speaker #4: Excuse, and the on-premise has gone from number five to number two in terms of draft. So again, those kinds of things, where you have that strong brand equity, allow you to look specifically on a market-by-market basis and get to that one to two percent algorithm that we've consistently talked about.

Bill Newlands: Those kinds of things where you have that strong brand equity allow you to look specifically on a market-by-market basis and get to that 1 to 2% algorithm that we've consistently talked about. As you would expect, we always look at is the market available to us, and we will do the right thing on a market-by-market basis no matter what. We still believe that 1 to 2% is sort of the algorithm that we expect to remain within.

Speaker #4: As you would expect, we always look at, is the market available to us? We will do the right thing on a market-by-market basis, no matter what.

Speaker #4: But we still believe that one to two is sort of the algorithm that we expect to remain within.

Speaker #5: Thank you. Next question is coming from Chris Barnes from Doja Bank. Your line is now live.

Blair Veenema: Thank you. Next question is coming from Chris Barnes from Deutsche Bank. Your line is now live.

Speaker #15: Hi, thanks for the question. I just wanted to follow up on your depletion expectations for the second half. I appreciate the 1% to 2% comment on pricing.

[Analyst]: Hi, thanks for the question. I just wanted to follow up on your depletions expectations for the second half. I know I appreciate the 1 to 2% comment on pricing, but that and your expectation for shipments and depletions in absolute cases to track closely, that seems to imply a pretty material step down in the second half in depletions growth. Could you maybe unpack the drivers there? Thanks.

Speaker #15: But that and, and, and your expectation for shipments and depletions in absolute cases to track closely. But that seems to imply a pretty material step down in the second half in depletions growth.

Speaker #15: So, could you maybe unpack the drivers there? Thanks.

Speaker #4: Yeah, we're not we're not, we, we don't give, forward expectations on a quarter by quarter basis. But here, here's what we'd say. We've seen, unprecedented volatility.

Bill Newlands: Yeah, we don't give forward expectations on a quarter-by-quarter basis, but here's what we'd say. We've seen unprecedented volatility, and there's very mixed results. One of the things that we track very carefully is zip code data, and the results that you are seeing in high Hispanic zip code areas are significantly worse than what you see in the general market. We've seen some positive uptick in some of our top five states within the general market where those zip codes, where the general market zip codes are a higher proportion of the overall consumer base. We're cautiously, and I would stress that word again, cautiously optimistic that we've hit the bottom here. The volatility, as I said, is unprecedented, and the results are very mixed.

Speaker #4: And there's very mixed results. You know, one of the things that we track very carefully is zip code data. And the results that you are seeing in high Hispanic zip code areas are significantly worse than what you see in the general market.

Speaker #4: We've seen some positive uptick in some of our top five states within the general market, where those zip codes where the general market zip codes are a higher proportion of the overall consumer base.

Speaker #4: So you know, we're cautiously—and I would stress that word again—cautiously optimistic that we've hit the bottom here. But the volatility, as I said, is unprecedented.

Speaker #4: And the results are very mixed. You know, the state of California has been the single biggest problem, as some of those 4,000-calorie jobs, as we often talk about, haven't materialized at the rate that we would have expected.

Bill Newlands: The state of California has been the single biggest problem, as some of those 4,000-calorie jobs, as we often talk of, haven't materialized to the rate that we would have expected. Part of that question is going to be, will some of that construction opportunities reinvigorate? That's good for the beer business, and that's particularly good for us given our strength in that particular market. All in, we don't expect a radical change, nor do we project it based on our overall guidance, a radical change in the back half of the year. We're going to watch that very closely and see if there's any improvement in the volatility that's been going on in the overall marketplace over the last several months.

Speaker #4: So, part of that question is going to be, will some of that construction opportunities reinvigorate? Because that's good for the beer business, and that's particularly good for us, given our strength in that particular market.

Speaker #4: But, you know, all in, we don't expect a radical change, nor are we projecting, based on our overall guidance, a radical change in the back half of the year.

Speaker #4: But we're going to watch that very closely and see if there's any improvement in the volatility that has been going on in the overall marketplace over the last several months.

Speaker #5: Thank you. We reached the end of our question-and-answer session. That does conclude today's Q2 2026 Constellation Brands, Inc. earnings call and our telecast.

Blair Veenema: Thank you. We reached the end of our question and answer session. That does conclude today's question and answer session and our telecast. Let me disconnect the line at this time and have a wonderful day. We thank you for your participation today.