STZ - Earnings call transcript Q3 2018 | Constellation Brands, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the Constellation Brands Third Quarter 2018 Earnings Conference Call. [Operator Instructions]. I will now turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations. Please go ahead.

Patty Yahn-Urlaub

Thank you, Lori. to quarter welcome call. XXXX and morning, our fiscal third conference Good Officer. here Sands, David Officer; Financial Rob morning Klein, President Chief I'm with Executive our this and Chief our and

directly factors news As website Please comparable risk financial a filings at may discussed call release www.cbrands.com. our this release refer forward-looking SEC statements included on between for on or reminder, the otherwise measures GAAP and available and any impact reconciliations Constellation's measure which make non-GAAP in news the this on are to most the company's we call.

Thanks call Rob, will advance. to which to Rob. here's Before over turning And I’d limit question quarters one to have like us the now that everyone in we to schedule. similar end person prior our per ask on call

Robert Sands

and and Thank opportunity had and and Constellation products celebrations morning, the Year. in of fine Happy the enjoyed you I our friends. good your you, family Patty, hope holidays to some include New with

traded to shares. new results repurchases billion ongoing XXXX, in our compelled the authorization largest Canada's Corporation, price repurchase the XX% in in and of on price market in is continues performance, of million leader multiyear and best a that business. and almost based and on the S&P year world Toronto consumer by performance Overall, performers which while dynamics versus cannabis stock financial stay strategy exceptional than joint billion in prospects reflect to presence the our time a the maintaining future supplier confidence believe year it Ontario, strong traded of numerous recent has focus the and evolving to opportunity in subsequent on calendar Stock global Constellation our a and total business. We Constellation $X market advantage share of Canopy XXX provides business in via partnerships. ahead market for year. XXXX seek of about stock alcohol posted S&P in our us of medical I stock one our I This publicly one the more about Growth with core cannabis investment recent in the excellent emerging dynamic Growth and a a players legal Constellation Consumer I market cannabis grew significant XX% a currently with commercial Canopy driven increasing for stocks. a excited As $X for outstanding meet XXXX the investment ventures board beverage potentially program been Exchange first-mover also Founded Canopy the prospects and another our XXX cap for has I'm reminded The our Canada. for for the Staples and stars, range. aligns our to XXX, with consumer growth has identify, am trends was the earliest among long-term the is our business. be

business in the cannabis successful developing related Canopy Initially, business. of a collaborate learning number we beverage is plan Our with will and a and and to space be cannabis building while jointly areas. route-to-market consumer the

Canada cannabis in legal this with including to summer become Now legal the is become recreational edibles beverages to in scheduled XXXX. expected coming recreational summer of

any to not legal of the at will and U.S. sell or market, consider plans it products current other no cannabis government. all doing is until so we have levels We in

execution Extra, posted another a additional David of accounting we the an investment. of how we approximately million of few the this are featuring also superstars Extra partnerships future. ownership third portfolio distribution in to the brands music leader NFL Enrique will $XXX holidays, quarter, Growth beer during for NFL clear for in The Maná. the football Corona winner of the campaign speaking velocity and Jon moments, also and gains Extra Thanksgiving with continue teams gains. option and Especial. end Tamarindo growth X.X% fighting the beer These business support of the Throughout the quarter Constellation great continued top Especial, generated and high which and of strong represents investment in In to Our our share-gainer Overall, XX was became imported promotions beer Labor increased led TV Hispanic of And the by remains the Corona during share ownership warrants official of Day which market initial drive U.S. the an for four and Modelo and relevance Constellation's business, plus U.S. positions with consumers Canopy with Chelada, interest give quarter excellent with Latin category beer Especial Modelo growth with ongoing purchase Iglesias and that Extra interest Corona Gruden beer Corona throughout activities while the our four claimed its Modelo Modelo total national the maintained prospects, the review XX% spirit and media Picante drove promotional growth season. Pacifico. including through of the schedule.

with through and including networks. ran support program Spanish TV Spanish-language national TV soccer a top-rated presence November live addition, language In strong

Mexican Market Especial quarter. Modelo Pacifico within for Muertos Independence Watch. on los of Facebook continues was our brands Impact for de recently the XX% NFL, mark brand. the third this portfolio and Day initiatives make to Year supported Brand our family its for Beer Dia named and of the media the growth Instagram depletion drove Social almost of Collectively, and also these by

fastest-growing Pacifico become nearly based of brands XX XX-week the dollar brand IRI has growth among beer beer on the addition, the XX%. fastest, In top

market as for finalize next extension Our continue more and is plans in years, than national robust to million more XX Familiar first and April. a year. for language the Corona support in we strategies launch Spanish beginning than Corona the Premier Corona TV and plan to evolve advertising general This Corona launch investment largest-ever effort. our includes our XX with Premier to plan we make of media line

sampling Hispanic-targeted Corona during brand. and Familiar a Hispanic same print, as major and markets, this include will key the out on-premise materials. to as advertising well media for demographic time roll will frame point-of-sale support social new Additional

side beer to the business. operations turning of the Now

of During three now both million the we the expected with continued glass and at under level, fully we line and track make to we also the packaging touches addition to finishing high nearing continues utilization at which on fiscal to in expansion And remain before running expected the with currently and quarter, with progress come continues are which a very our operational brewing The complete capacity as peak way. on XX.X brewery online completed Nava while construction Mexicali efficiency year. perform fourth and is levels. Obregon brewhouse coming Glass furnace are finishing installation our additions, our furnace, the of months. end put tank be the in to the to hectoliter capacity fabrication

quarter, with for our Owens-Illinois joint the reached glass expand and supply to agreement contracts restructure During we our venture including agreement.

of glass. the expanded Constellation's bottles progressing scheduled, agreement Mexico XXXX plans. with future the the our plant the investment relationships source one provides is joint glass in venture included of which is expansion Nava, and fifth addition come you been calendar to have as online furnace by As venture in of a plans The expansion supply just for mentioned. glass initial included end will capital brewery, as be I the OI provides lowest-cost The furnace, a from adjacent which production for for of expected operates exclusively to production joint four plant and original and our know, furnaces,

installation the XXXX. both modern Nava years additional the moments. the container has value-added the been high-level details the contributions extended In from XX discuss contract plant fifth partners, for of term largest, facility the of this of Following glass the venture an in be will in furnace, recognition world. the David of new joint to the a agreement few will also most

dealt and these one Now our that of for we division. a And Northern business key are we and has Sonoma consumption is been help term to and already quarter, was Napa quarter with It the our faced Constellation perspective, thereafter, our markets. the hurricanes things portfolio helping only to consumer interesting our rebuild in of spirits future. in shortly have Sonoma completed or hit continuing business. Please Overall, to when put disasters an and long communities California and history certainly less harvest with wine and Napa as wildfires started, and and in worst this in of expected turning natural by in appellated. we're our To state support we to both a near history of are us effort. some wine fortunate impact the of committed widespread wines. driving encourage purchase spirits and Sonoma, engagement Napa neighbors Early has were California. events about wine our minor the the in wildfires in than X% the and XX%

which Private strong for a Robert growth and High these selling led first-ever second this and quarter. depletion Black and quarter, following during Whiskey. to muted marketplace for a drove Third Brands Mondavi West advertising for season. finish quarter campaign visible national wine trends excellent Focus our key depletions the brand the holiday trends Ruffino, brands growth spirits focused TV drove Selection double-digit results, our of were Meiomi, were Crawford, Key including Box, Kim some investments the the bit drove Kim in Throughout accelerating by Crawford, for

expanding driving Prisoner, Ventures busy, become And Bourbon align are than Private Cooper seeing with growing basis, #X distinctive making in to strategy The report from blend; investing efforts the I'm been which are more year-to-date off like Chardonnay, together in of a which and on Robert paying also Mondavi innovation Now investments, successes that our channels. business results red minority Selection both Thief, Smith mix, and has brands. super-luxury excellent positive has unique and IRI innovation of which & including generating Cabernet Constellation with XXX% Barrel-Aged High and acquired West. Meiomi, two pleased emerging recently the brands our Charles margins, is and

production process McCoy, This The in in master aromas. or range The of point Distillery legendary bourbon a aged Seale, high-end an premium is year using and the molasses added produced high-quality rum by authentic Richard line a with and uses made oak XX fourth-generation of Barbados. farm-to-glass Foursquare Real X distiller American to flavors has sugars, rum $XX aged blackstrap barrels. $XX This X, at first no and a price product is

& and bourbon distilled retails founded copper in are for Copper brandies the is brandy in is a naturally craft These matured second in Kentucky high-end pot Louisville, bottle. The barrels a liquid Kentucky. American Kings, in and $XX stills, XXXX

slowdown a healthy rate in the industry CPG that we to with overall we wine earlier when our seen remains bit U.S. growth, trends this continue U.S. anticipated year. category we the set of growth have what market original estimates While versus a exceed guidance

addition, tail of for spirits guidance are the EBIT previous rationalize headwind carefully targeting to low our portfolio X%, fiscal continue and ranges respectively. Despite wine sales end these growth efforts as of challenges, at X% In brands. a SKU X% to creating our and we we to of are and XXXX rationalization stated net our X%

take Before to moment reform. like I the turn of tax topic address call over to the David, I'd to a

reform a As companies been supportive tax Constellation to alcohol that globally. remain beverage competitive has allows U.S.-based U.S. company, of

in will with continue legislation, it'll David to year is this we for positive historic yet provide be shaping few and eventful very additional be at we to the very up closing, are going that While legislation us Constellation. another believe certainly details of minutes. forward. In it pleased review a outcome the

fifth our very in fiscal advantage am established continue I drawing including With a with planned Nava. with glass in and we smart plant year investments to make We Growth the at a emerging of pleased progress close, a addition our the date. Canopy investment, first-mover to consumer to our category quickly furnace

reform to We continue continue with results ongoing our David, of through to shareholder and I look will who by pleased now leveraging to our turn over the for and quarter. to appreciation the share stock tax We financial legislation. and that will And like this build strong opportunities outcome I'd am the value third forward call future driven repurchases our With that, prospects. review the results thrive. for bring business to business

David Klein

structure basis, discuss today while Thanks, market of Rob, and initiatives as another improved with morning, growth here capital everyone. and we margins to pleased year-to-date quarter be a share, On execution. to benefit good you will grown expanded in strong us that we've I'm go forward. investing our

is rate increased $X.XX basis QX 'XX diluted increasing beer our primarily EPS and EPS was year versus about guidance $X.XX. to comparable I'll to $X.XX $X.XX effective a performance The X%. versus rate primarily EPS from margin as fiscal up This business, a rate we're our to XX% year-to-date 'XX Our diluted year diluted due in anticipated EPS tax XX% better expect talk low QX which range comparable comparable basis now of moment. full is growth last tax We favorability timing improvement full previous XX% to in guidance. due comparable basis our year. our in our to approximate to fiscal

Our EPS excludes guidance recently tax from and tax enacted impacts rate any reform.

Before I tax some provide legislation. into me on our new further move results, let the comments

the it impacts First but clearly effective Congress Like bill friends for reform tax specific companies, tax guidance. work and in their want is mid-XXs the tax evaluating that our to code. to most rate with of our to process low in we're favorable all, reform, corporate enacted of previous pleased we're was of to the the thank long-term

For new tax tax rate. benefit for last statutory will in fiscal apply lower statutory in the a months rate tax year, historical rate. corporate XX% our two the our federal blended XX% fiscal resulting to versus we U.S. expect 'XX, rate The of

taxation tax new legislation, onetime 'XX and reduction reduction in liabilities of basis in tax results million. quarter of or impact rate noncash comparable the from tax will million $XXX a results. the This excluded our will fiscal expect by existing our be will a reported territorial financial transition deferred be net and our to $XXX benefit the fourth the -- deduction in to result We including system

provide presentation to update investor We effective late our in expect of long-term February. guidance part our at as the rate tax CAGNY upcoming conference an to

Now focus let's full look take generally at and QX on basis financial a closer I'll our performance outlook, results. year comparable where

primarily Mexican result be driven of The depletion and we Beer our X% for basis the benefit COGS portfolio. XXX won X% operating operational growth to pricing now primarily with range. margin material in continued we offset and $XX marketplace million Depletion came we Net sales beer, X% to glass in beer in a to This sales as -- range 'XX lower or For benefits fiscal QX. on operating depletion and XX% ran performance sourcing along in growth $XX and be strong our due to XX.X% lower Day meet points increased growth includes Depletion of continue to X% benefits We more our see which COGS This by in high-single million currency X%, target ahead expense, by volume beer margin totaled depreciation to increase Year-to-date sales beer favorability. putting increased fiscal These line to growth pricing. robust favorable on reflect expect income track the timing. Labor Thanksgiving at for as digit operating foreign to due in were to for XX%. our net year-to-date partially XX% with growth to us was growth target X% to momentum. operational shipment 'XX. the net of growth X%. and holidays. shipments grew than of performance growth expect

our Although previous guidance of increasing margin costs combined we're headcount primarily production lower expected commissioning operating with additions. to end line our to ramp-up our the depreciation, QX to continued upper in the and moderate seasonal is due range, volume

business. the to In seasonality be the expected by addition, of is SG&A impacted leverage

mostly year. spirits, marketing supplier overlap and in Operating and offset as offset including by basis margin a of primarily higher wine benefits higher costs The flat cost benefits the For reflect primarily reimbursement XXX XX.X% investments. than COGS were QX by organic points transportation increased and efforts from to more decreased net higher were last costs volumes. premiumization to operational COGS due portfolio mix sales mix being lower

increased Crawford, several We realize Kim expect next Charles Ruffino marketing benefits to and Smith on from the spend brands the like quarters. over

the sales For X% has net period, expanded basis are operating XXX organic margin points. year-to-date and up

operating are Excluding 'XX. of net up sales of X% income impact for and divestiture, X% the months the fiscal grew first Canadian business wine X the

low to our and Rob of 'XX, Canadian the we end divestiture, growth X% business to X% for expect X% fiscal when excluding ranges, mentioned. targeted reasons at net to be operating the For respectively, rates wine and X% income sales

lower-margin reminder, balances. for wine as expected SKUs. basis rationalizing margin almost to we've efforts, a been X% spirits by As ROIC. These increased expense fiscal premiumization and 'XX part points due value Interest are higher revenue debt growth our impact of average XXX actions while operating improving brand and to primarily

notes improve the our $X facility. continue up October, to we which provides amounts borrowing status. In at also used of to and repay costs, under from implemented billion term attractive investment-grade European commercial we to senior We In outstanding issued proceeds of for rates our A billion to of a benefit paper variable-rate November, issuance $X commercial the paper. fixed short-term program, loan

EBITDA returned to end from Our X.Xx operation, $XXX invested million while shareholders paid 'XX leverage million the debt to cash in and to net and Growth we ratio at comparable portfolio our on during of of third Canopy the dividends down of moved our Mexican nine $XXX of first quarter. of a with basis X.Xx the an at and year. the with of the our during repurchase of stock fiscal end this worth activity $XXX authorization. months little QX, At end million most there shares occurring The repurchases X.X repurchases was over the existing of stock price $XXX average at share million represent remaining November

expect the for of years. an share mentioned, billion our Rob which several As additional repurchases, authorized Board we over to Directors next we're pleased $X that utilize

leverage X.Xx us allocation continue invest and remaining to Our cash business our committed capital return allows while target. flexibility to our in significant to to shareholders

from election earnings XX rate reinvested last XXXX-XX, previous year-to-date lower activity versus earnings. recording payment This XX% 'XX, rate in We of approximate now The to at our Our foreign projected the be indefinitely overlap award adoption to year. versus increased 'XX under recognized tax to APB taxes which stock-based impact expect our effective the reflects in increase from fiscal requires offset excess the comparable primarily on from income XX.X% basis ASU tax lower third an is statement. in of XX%. benefits quarter foreign effective the of XX.X% of the fiscal partially fiscal guidance the benefit rate of by came tax 'XX due

like weighted from also and to tax include million to earlier, our million noncontrolling income impact $XX outstanding million. we diluted shares average to to to updated expect approximate any noted XXX $XX As continue I'd approximate 'XX, fiscal guidance note to reform. for attributable net doesn't shares interest

As mentioned diluted growth. earlier, $X.XX of year-over-year this full guidance midpoint range the EPS we're now year to The to us basis in projecting targeting $X.XX. our comparable XX% be of has

comparable comparable detailed adjustments, to highlight Our basis significant guidance like occurred the are that in in release. I'd which comparable QX. two excludes adjustments

in change the pretax is first price XX.XX investment of the warrants. the end the upon gain The is primarily gain at compared share This share $XXX Canopy value quarter Canopy fair Canopy well. a of of share has million based and price at investment. from CAD as the Canopy for The our our initial third higher XX.XX as third quarter time price to end since the the CAD moved significantly of a

the in record quarterly fair a continue basis, reported value on we guidance EPS forward warrants accordingly. Going to update investment and a and change adjustment of this comparable will for

the fourth guidance our our the price end the third at price share Canopy equal end reported assumes will of share current of quarter. at the quarter Our that

venture to contracts our for Nava of online plans. by million. second added operation furnace the fifth related both restructure come by cost agreements is end included $XXX and at The financed an be furnace the be partners to supply The fifth estimated a for with investment by Owens-Illinois the expand equal glass provides This of is years expanded to XXXX. from contributions future reached will highlighted calendar of be Constellation's in an sourcing will XXXX. to capital where XX to targeted The at joint agreement plant we initiative glass and relationship Rob,

OI. efficiently During This restructuring QX, provided our enhancement from our charge higher additional return associated of in million to with the pretax providing margin more supply, our Brewery Constellation initiative we agreement will recorded and source glass result investment. a Nava lowest-cost being with opportunities on $XX glass of a for the

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

flow last 'XX, For the first generated more FY growth as we was same in million by $XXX than of $XXX operating period for versus offset an cash nine months of cash the year increase million flow free CapEx.

'XX range fiscal in be We flow million million. $XXX continue of expect $XXX free to to to cash the

standard, Constellation and cash this CapEx which our billion of to billion flow fiscal be and range be offset free $X.X an expenses revenue to currently, highlight are $X.X of operating to to new they certain we'll At billion Mexican adoption, targeted accounting of adjustment recognized flow retained the XXXX-XX, end the incentives the CapEx recognition fiscal I'd of Our will $X the in $X.XXX increase 'XX. operations. 'XX. like guidance will earlier cash accrued reflects sales including for beer Upon beginning at of with approximately billion earnings billion for $X.XXX to ASU effective as of than make an point,

to with the don't be to will the there fiscal year we of 'XX 'XX a of in expect fiscal net full along 'XX changes, impact sales. the material process fiscal We but We're quantifying quarters. recast and

financial We 'XX heading deliver positioned we're happy year with another we your into our In I fiscal prospects to Rob of financial expect to And and fiscal XX-K. we're fiscal we provide take excited performance recast file about well closing, top-tier and out our close questions. 'XX. information as 'XX, to that, when are

Operator

[Operator Instructions].

Your Dara Morgan line Mohsenian first the Stanley. of from of question comes

Dara Mohsenian

is question on the My division. beer

also margins QX. million year the beyond far light factors magnitude the in you don't the heavy those causing then you discrete And operating First, you're the next help behind you expansion than investment large and so QX test to decline $XX in top line based more fiscal factors in markets and David, call? linger back in Are contribution seeing in you those year-over-year compression? from mentioned of number you a of front Are reasons get mentioned the in expected of year-over-year more QX? in of Premier beer what on frame the that earlier can on you expect comfortable beer,

David Klein

Yes. issue because is haven't business our real Dara, agreement margins QX seasonality seen this. prior of full that until for really being so in the year of under the for of this we interim terms us a beer, picture supply to

And cost so the sales net the effect that, get we're And our of so a line it's employees. fixed a bringing line. the plant at in QX, quarter in of the lowest year, of delevering we bit as top on on SG&A well then in as

in cost. able we're get season, and we will when be some So adding we headcount QX commissioning that deploy have peak the production to into line we

So from just benefit next seeing around margins sales our the but able be to of to to majority end for we the the going line forward. range just of the I'd seasonality this this in top year to that year. quarter I Premier but headwinds of that both X% we peso bit QX and fiscal think in perspective, sitting our we're strong our expect XX, simply within And deliver also at a we XX-ish net days from margins, versus of have then being why year, pretty so in not at the year, be and there's FX our we're QX and say, headwinds the when from Dara, normal the launch which built beer in, for end we get expect of QX about XX% the with kind a a concerns confident QX is margins those the year. inventory to distributor expect of of some we the seen will had

Operator

of the of Modi Your Capital Markets. RBC Nik from next question comes line

Sunil Modi

Just -- as some the a obviously were Can of curious of incremental of space set what big provide now ago? saying a on where you're looks initiative new and it years now. been been February distributors the marketplace, launching just changed the pushing are retailers just shelf number and products I'm for have guys that into year in kind a context from terms on I of it's we you how you approach know some kind because that's resets and how you

Robert Sands

Yes.

So commensurate growing at I on general, think good retail we're profitability to with our at that how efforts progress view from we're a our space contribution making increase our retail. point in and of

see we continue So growth. to good distribution

everything on have additions track. say, significant brought is to some those so and We've drive great management made some bolster continue activities also to organizational efforts. category our to And in really I'd people

But of not general, pleased we're times, we retail. in space position, So from allocation start number that think be progress with point stated a view as we're of where the making. a be should a I've or to we like from being of we at would

David Klein

really basis, are also gaining a well year-to-date distribution. our I'd of do Nik, effective digits, that add points on to distribution up double so in continue we

Operator

Vivien Cowen. of question comes the of next line Azer from Your

Vivien Azer

mirrored your was very Nielsen. PCE thoughts for category. increasingly in results I the look we're in in good depletion The growth the sluggish from category a perspective seeing beer get hoping growth. your to on deceleration to continue also the outlook So despite That's

to your how cannabis, thinking with from impact you legal so 'XX calendar and cannabis? the about for overall beer market, transitioning California, category largest are any And

Robert Sands

Yes.

giving slightly one, think premium of particular, think fundamentally high the general I with in So shares. that is category to in number the continue the down as a flat in performing. category end, we that market then the has beer in the been and growth going being volumetrically end the beer up It's to to market perform all

that. California, see cannabis don't So impact any in think don't calendar we we'd really year next move as different And expect from I then into there we anything on XXXX fiscal. see to or our

people real accessible state a I'd XX the, cannabis medical is level has on And think I everybody the for we we truth been recreational or the marijuana the of that in been appreciate it's impact pretty official And necessarily see say, then it's track tracking one is how what of probably alcohol the and we legalization six now including any also, states as else almost at to that in available purposes where states, numbers, and even nonevent that therefore, don't in is general it really look generally things matter. as beverage is everybody for years. a -- affecting of of legalized. California the terms can't

What I past, general be big it's it's getting probably big about to a enough debate beverage going that's how said say complementary. to we into a to going I now the So in not going or cannibalistic guess, I've There's affect worldwide. forward. think, is it's whether worth alcohol information, as, market, not however, right do really just in know

Operator

comes question the line Evercore from next Ottenstein ISI. of Robert Your of

Robert Ottenstein

Just wondering give I'm your terms of could will any out last in be develop us building to the of or the on details general kind details team Canada the plans in and you on codevelop sort strategy. looking or further there, days if still And early sales a a following what I you're be route-to-market. you much products question. learning sense process, but get of you'd on in a and it's to investments very and would to about that put sort ground thoughts and very looking it understand the this how love just on is place of thinking of

Robert Sands

Yes.

So are investments. we making

category organization in work continue as organization a But in with an Canopy, expect a to than we organization will a a anticipated organization in focused we And stuff lot evolving our extremely their have of totally fully and with consumer and they of started team do marketing, the knowledge a haven't of sales Canada. place research, company, a has they, standard that sort it because emerging terms lot as more a fairly build as yet. put Canopy become CPG a in deep have partner marketing to of we in. high newer and partner, building sales growth, organization I'd We and really them. sales expertise to generally developed on a well, characterize have in what

in market So which recreational initial with to really to the their in we've working XXXX attack going become when, we with either is team, got case, or expect team our our and XXXX. in legal, legalization together beverages be that

unclear of in but come lumping might right XXXX, of the sort the XXXX. they're now, into do kind stance edibles whether think that will official is I government they what -- that or in beverages the it's

is so now in of nonalcoholic right we're cannabis. include So infused Constellation, the developing as Canopy, relates with have in XXXX. be cannabis, -- with is, beverages which it probably or we it best what beverages, official then And or beverages would the guess to word terms

we're fully those time on exactly the flavors, own and branding, of the like or would sort of should time. of have that terms in So Canopy's given the we packaging, to everything well. product of T-W-E-E-D, at cetera, of this we brand development baked we nor don't at terms things Tweed, side point even time the what I this potential the business in working products frame, has of But in and as terms in a lot its got strong marijuana think a branding. as of currently, called in of uses is medical et brand which

Robert Ottenstein

And up on need following in would Québec? just Great. sort what organization you that, of

Robert Sands

by in organizations Canada. specifically done about that terms far like that gotten say, thinking of a I'd really, organization, haven't we're said, relates really as sales it to province. I that as Canopy through But be will larger we Well,

wouldn't build I investments capabilities building some we next us and see a significant huge year. will So make but necessarily, organization sales some

David Klein

Yes.

guidance for will we investments some. cannabis. when call, year next But provide Robert, clearly, we'll on our about the in be talk there So

Operator

Spillane of line Your next of Bank America. question of comes Bryan from the

Bryan Spillane

follow-up clarify the rate? couple fiscal Is expecting. Just benefit was just guidance it David, the guess, of your One on tax the relative to 'XX to on XX% relative I questions, benefit on long-term wanted Or I rate? that tax. had you're is comments to that a

David Klein

what that line CAGNY it But through mid-XXs as year. out But the specifics get year it apply the for can kind a when we'll likely say guidance in have it's of going with XX% more rate was long-term our beneficial to pretty to that I the we in it's low we're to as well be this the complicated script or lot in to for long-term that this of said what's to the even to because, can be that below remainder regs guidance rate. working would the confident Bryan, understand you how business. and threw we Well, we to as imagine,

Bryan Spillane

at taxes, have any free cash expect cash of -- effect rates, real whether that you'd cash look you do So there's flow? to will a think cash then kind benefit as in And a tangible on as terms to positive yet receive? of you that tax it sense

David Klein

continuing basis But amortize said while little working we're we through expand intellectual on tax suspect the will that be less at a points, haven't of we still guidance time. from again, before an to don't effective -- this. over answers. several So We'll that but that than somewhere said those would actually -- our property We that, we're we final rate provided XXX in points basis we bit CAGNY. have around have and tax some weeks rate XXX we cash

Bryan Spillane

But that, rate your rate that there's relationship lower your between new would maintained? effective a and cash chance tax tax be

David Klein

Correct.

Operator

from of line Swartzberg Financial. Your of next comes the Mark Stifel question

Mark Swartzberg

spirits, Approaches a post but Rob, points spirits, out I A in there, But information, year-to-date X%. Marijuana question and as plus on to was wine consumption your this Colorado of There's point of has legalization. organic data Smart found. lot a just group risen alcohol useful like wine just and revenue called really that

rationalization. 'XX on fiscal and Or that annually, the mid-single But fiscal digits? target 'XX through do hear you mid-single deliver to digits I think how mid-single what's about you is high? too thinking is you SKU the are digits necessary Your

Robert Sands

our the impacting The than where good. low end out basis to of little to initial impacting and sort more impacted, range, being sales, premiumization, go to that's the on business of and the price we're growth acceleration seeing would all we high the down net feel think given end the Canada for used substantially the we are of starts to Because the mid-single now, end It the in really seem actually basis to was is an in growth, lower that be us bit, points coalesce than the pretty range, of strong to price segments the we which will they range. impact That what points and towards points that commercial X% we're are XXX continue well see and below end, pretty $X where past. of of year. are XXX we're think quarter $XX continue that about will around we our be that. points, have to so been Canada, expect guidance we I'm some excluding higher within the sure which fourth is wine particularly sales market And relative how said we market of to in the be Lower of to confident now still $XX seeing wines business. positioned That's we're turn probably I we well points, factor on right could be those $XX points. the sort price biggest year. good premium news. which those are the has the Well, and growth sales, thought which is the We we'll feel -- we in price very between the the growth we hurting slowed net focus market so and where that's range. range. It's that probably probably in Year-to-date, be we for a versus

become the not going think future. all the to over $X growth where to plus $XX, we've more the of the focused several much so that And to even is years, so $XX on in in range, we last be now much but in $XX

the the in in expect bit this half year. wine a of general, of category a slowdown there's second We little

the said, been -- general. whole We fastest-growing couple category of the the -- or products digits, be categories, points. will X%. continue basis that consumer almost faster of one X%. outperforming to at mid-single products As consumer could a rate's We XXX I think were the be Year in growth

lot said, end at in to So say of fact, range, the range at growth is of the of prefer any sign. but in be commercial extremely we premium particular. low I range, constitute of of here high of don't unusual brands see in end kind the And $XX, that end warning seeing happening the is anything I'd to the the $XX our than a encouraging we're should portfolio as kind for we higher or the a

Mark Swartzberg

fiscal points is I could mid-single have doing in the of thinking about getting 'XX fiscal from XXX about business And 'XX been underlying the clearer. so a current year, X%. fiscal you're objective through acquisitions, I your was digits. basis

business keeping up is on it an growing So mid-single is pace is I organic just was of because, the really thinking about, your digits how acquisitions not basis?

Robert Sands

we're the it's with to anything. we're about our And numbers digits. talking expect underlying correct, of you say the business been the that quarter softer or And overall, the essentially line term would mid-single see has about just are really quoted, or I excluding indicative -- like in but probably I you bit to short the which being than think whether be it. acquisitions, Yes. see those don't timing, fact, we'd business numbers that we in the whether a market talking quoted we that that

David Klein

to portfolio we to hit to don't add numbers. the need continue we Yes, to think those

We expect that our it grow portfolio stands. can hold share as or

Mark Swartzberg

you in expansion that if next you growth? you do margin want so lift organic think get can And year

Robert Sands

Yes.

Operator

Hong Your line Judy Sachs. of next question the comes of from Goldman

Eunjoo Hong

the a program. $X billion it's on So multiyear share announcement, buyback

your still with additional of especially seems for it cash free plenty stepping and other fiscal in with with room to up tax flow So 'XX some leave accruing. usage, you benefits cash also

the just a around I'm And big board opportunity, program have thoughts of you to earlier guess wondering can do think number. that expected? with I extent So you came that the that kind program. you you Just up why M&A complete this the than don't

David Klein

Yes.

board on can and want didn't asked horizon for authorization the we be opportunistic, so it. we Judy, we the a a necessarily that So time

authorization, way gave which in they the us it consistent a the multiyear that with so we've done always is And past.

beer, we've X.Xx said that ratio after we've in our do through and to particular range, in somewhere then in leverage share repurchases the our the our business in intent and and years. that dividends that's invested some M&A through a shareholders before, lot we we'll M&A for the activity As over it's done few past needs, returning expansion probably to like -- keep activity looks cash

opportunistic. will flexibility be looking say the would we for multiyear in I and that repurchase So were

Eunjoo Hong

weak follow-up what quick have beer just terms you trend? see and year, December, had a this at depletion. of if a you the on obviously, color any in Just we you you on to all December just because then saw -- and comment wanted Can just get Okay, pretty December. last

Robert Sands

You're right? talking beer,

Eunjoo Hong

beer. Yes,

Robert Sands

bottom Yes, is we're the depletions quarter beer expecting on fourth line. a pretty strong

David Klein

line in that to performing is we're December us with comfortable. so quarter, And strong getting

Robert Sands

say be, should general, in I sort be to much them pretty where expected would right of we around number. our that right depletions they beer and XX% where are

was quarter, this So it's good. beer. -- The in good. quarter We're X.X%. it strong It's fourth a expecting quarter

Operator

question the of Herzog next Fargo. comes Bonnie line of Your from Wells

Bonnie Herzog

still seasonality, of to versus stay in the just recognize, terms there's or And but depletions I topic, quarter certainly usually two some a differences, the want there's I timing this even two. decent last shipments. between this on just during quarter, and delta

these could understand the the and year you demand, And is expect marketing the then progress more you how well two new are better consumer this innovation. campaigns then or end the mentioned on a So your throughout closely that Or planned comment right you delta? help there dynamic? you could as to given as And big now? curious pretty if us tracking still

Robert Sands

year-end. were X% Year-to-date X.X%. matter, that quarter, and considerably, think depletions would be the entirely depletions quite delta shipments approach ships and I the around we a up up X.X%, That to timing-of-shipment expect as are in are X%. that don't below anything versus be So like we

we -- that it nothing on usual third behind mean, that It's depletions quarter, there's definitely be there's bit than I ship be Bonnie? in how or nothing there's anything your that -- that unusual. on there. not other mean, I But we there it's lagged then to -- the or just last expect so timing-of-shipment question, I And that day. could a don't be going it a and a anything matter year-to-date, there'd little was the quarter, trend matter, So shipments lot third but a we're in more closer. seeing say unusual.

Bonnie Herzog

right get to the trying current Just consumer demand sense a of now.

on throughout the have how that more but to progress touched you previous question, You expect I'm that with year. the curious

Robert Sands

takeaway IRI, -- business, about by strong. measured the it's consumer And more was talking be XX.X% strong If very like that we would [indiscernible] the is for at evidenced that with you're very think for which quarter. instance,

the with issue any see whatsoever. consumer don't we So

fact, especially strong very In in measured is now channels. takeaway the right consumer

Operator

Your comes Tim of of next from Research question Pivotal Ramey group. line the

Timothy Ramey

perhaps wanted of I lot it there's in competitors your on rate. sort of you a kind do And do question. benefit? kind to the But do or there industry. most will the margin perspective of a not press what to line since on the from industry, the for have your many you'll are held, of is tax in through particularly this issue, goodies thrust promotion because fall your wine of accelerated the to the privately will alone the of expect How market, or my you think when leaving bottom maybe this prices -- play of will competitors

Robert Sands

would say us, the... plan sort for I of would we Well, on letting that

Operator

Please today's apologize. Ladies I The and be [Technical will resume conference. delay in slight a momentarily. Difficulty]. There conference hold. will gentlemen,

Patty Yahn-Urlaub

We're online. back

Operator

the resume you Yes, call. may

Robert Sands

but have going saying and got question, Tim's are to certainly, products, healthy industry. believe as we the People he was it general tax I asking off be mid-sentence, was And the that I what positive. was think to to for in money it's about going reform effect pocket. that in the answering And was I of -- more relates on very their to be going it premium we in was cut going be that's industry. to

news news. good No all on So that front. bad

Operator

Powers Bank. Your of next from question Stephen the of line Deutsche comes

Stephen Powers

just back I Dara's reframe beer -- and versus I David, come could, if to it on terms QX. in want margins sequential QX think to I it original was for question

comments implies leverage falloff I by show doesn't your some QX. But guidance seasonality implied my in QX versus -- really math, QX any P&L think lessening in on your QX. sales your

the and assume, demand. know -- So peso on Because see that. I you to Glass side, guess 'XX bridge else would continues you comes was ramp, should I of as But maybe seems and between QX cooperative. But so first the continue get kind going build, at on? benefit other depreciation the I could to so on. difference you of anything ahead hiring I there just QX it? some mentioned half

QX QX? Or So hiring the there forms is something it and really delta between that is just else? the incremental

David Klein

of all it's above. So the

commissioning incremental costs as we assets go once We're the opposed capitalized. bring something we continued employees. It's bring assets to P&L as remember, into more again, And hiring depreciation line online. costs, through online. the put getting So it's as incremental production, we

the I production think year, sales for is business. the in And in the we're season. prepared is we net at ramped bringing in seasonality to historically there there have production like QX XXX this employees beer that level be up in, employees then

-- So be quarter. the just I and margins sit really we're the -- don't they where suggesting understanding year-over-year. lighter that the to margins not than not to to actually were in margins want -- QX little of will end when for why I'm we at in again, apologize a with bit say, fourth hit going growth here the in expecting all-time or took the we top up our up But guidance we're an high. end guidance least tightened is the the EBIT we're range

Operator

of the Your Teixeira Andrea from next of JPMorgan. comes question line

Andrea Teixeira

narrower. to above more compared I'd up more plan shareholders up on uses year-to-date? the shipments with you with M&A? talking clarify. towards will to capital quarter follow Did As difference the of to be fourth and match indication your just or depletions like that I'd about or quarter shipment heavily with an you commentary. structure. fourth the follow cash to also up just would is for And shipments, be the the on do weighted on correctly depletions you as to accelerating definitely up strategic depletions I accelerating the the will the catching mean pointed line capital new against coming buyback Is obviously, year-to-date. in depletions wanted above year to But return that out, year-to-date then you're beer to volumes be like

David Klein

do -- the the and The year, all, the on alignment, from to the But end year-to-date will digits net math point on I number we'll are -- about of depletions just deplete way growth come billings high-single and X% ship of XX% in terms algorithm, starting is the last in bit of very you the we line year. we X% because So back to a the off your depletions net sales. kind of in percentages the And again, same sales kind think first pricing at of of best of of X% with that's to kind basis. the to where and putting be cases. the in little

we capital to structure, would the that time we're where before. because have back Andrea, closer authorization that going is of to buy cash the getting deploy, continue we're say flow our In the we're terms I we believe But that all in the use we're undervalued. company of stock and is what and we lot to more represents that free saying a going to ways have to that clearly, more

Operator

Caroline question Macquarie. Levy comes from of of next Your line the

Caroline Levy

My question's flagship your around Corona, brand.

to brand. on Familiar If were about potential with and you your be in third very what it So thinking where quarter, with launch. could be want see little a Corona talk positive dip, thinking or if we trade? just you existing that the like something the that flagship closely, your you're trends Premier bit talk a Corona even about about watching quarter, is how should don't the last how you're April Is in cannibalization going to to about margin

Robert Sands

Yes.

X% Corona given in we think about the quarter. in fact, up maturity. very was remains healthy, healthy It So its

David Klein

depletions, [ph] right? Beer

Robert Sands

with depletions. pretty continued Yes, we And on so where see consistent growth. and good it's that's good there growth tracking,

large Extra -- cannibalization. doing and we was less it's its the And the mature it I state -- we yes, to I that do was shares which Corona But market. a a is more all lower-margin think is problem mean, thought that particular plus we, and se given in market it. most that per But probably portfolio. brands test We has cannibalization of and encouraging. fact, the be the we everything what we're nevertheless, is it think Corona was than looking tested it's want the would Now at most asked you in per indications your add of it at And because one were to about se is very in three, will product. to The question our well. places, then well, cannibalization to continue Premier, that. in up one think which The not we on maturity be wanted not

the of a are a to yes, cannibalization, two you be to So certain people attracted different going meaning at the to looking it's but are be be imagine we'll to that can degree, consumers people going a doing Premier okay. And that it are already and beer. that not light Ultra, without beer, Corona so some obviously version being who drinking regard are a low-carbohydrate light a like people drinking to or are low-carbohydrate Mich

to just there don't logically, expect be So there. a lot we cannibalization of

Operator

final Your question from line come Chappell the SunTrust. Bill will with of

William Chappell

heard there. other that how terms, there kind or reversal a been the my much follow I'll reinvested? volume in would you're the on-premise. on-premise the to and just and you board try maybe how craft kind to of still And back spent maybe, One, spend do of then question, company it not quick of discussion just pocket? types been added on up taps how trying all sources the different some the two brands kind there've of trending? any you're update benefit. I your tax. so there's extra lot that's getting on has that final of of ones. Any of on from and figure business. And We be the money understand seems will Or for of from out But

would if So great. some give there, update us be you you could that

David Klein

they're things our our overseas -- situation's in for the terms the in as that Mexico in into that breweries do Canopy of lot we've we already it overseas heavily companies Canada. several are cash that next our had on like different of tax, and in invested as months, generated investment in a a cash well on little to something with looking unlike that sitting So piles

occasionally our -- is cash us, stated of deployed so lines the accrue over we the get And think think our for strategy, that dividends the in well. transaction, get of cash time benefits which I rest or flow continue previously allocation the and along capital where and sort we we'll as growth in and accretive invest business, can to ROIC that shareholders M&A of accretive through look a return share to at repurchases,

doesn't well, I on-premise, to beer the So think would that, that in continues -- we're do our up terms say business then for last single digits. I change. piece really And this high of quarter,

last a consistent over trend been that's think several quarters. I the

the the overall down, in during strong while the have performance brands and time, just brands our we're so on-premise, trends call of even it continued seeing in same digits. on-premise And low the single been

Operator

Sands I'll Rob now any for to remarks. closing additional or call return the

Robert Sands

our the Okay. you, we today. few line Well, our minutes, call rectified -- we but joining thank certainly everybody, a going would apologize dead for say for We that that. I for we'll the strategy. performed 'XX, to well nine for sustain first continue are months on our premiumization fiscal and executing has our we of exceptionally that very profitable TBA business growth confident by

at that, Prior of Summit the we for we'll Just in conference will look couple late Industry seeing as our initiatives. a providing updates on the of quarterly call, CAGNY weeks at fiscal be year. be many Beer we and conference strategic a forward business providing upcoming reminder, you to during February, the our next where in to guidance

the have day. a So joining thanks and call, again, everybody, great for

Operator

Thank you. That Third Conference Earnings Constellation does the conclude Brands Quarter XXXX Call.

now disconnect. may You

Constellation Brands (STZ) 5 Jan 182018 Q3 Earnings call transcript