STZ - Earnings call transcript Q2 2019 | Constellation Brands, Inc.

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Operator

Welcome to the Constellation Brands’ Second Quarter 2019 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode.

Following the prepared remarks, the call will be opened for your questions. [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

Shannon. Thanks, welcome quarter and call. XXXX Constellation’s to morning fiscal second conference Good Financial am Rob and Executive Chief with this David our our I morning Chief Sands, here President and Klein, Officer. Officer

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

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

Rob Sands

Thank off and double-digit you, product discussion like quarter by business, core driven tier results. the delivers delivered top second quarter to I call growth and Constellation within that of consistently an the to that with Constellation’s growth our depletion beer would Patty. earnings space reminder reinforced has results. with morning sales of results. performance sales net results industry-leading our exceptional as operating kick by Constellation comparable second business and XX% welcome were record Good which consumers’ outstanding These and the EPS organic a margin

of Corona Corona largest very, high-end best-in-class XXXX of order. Corona of first new Corona launches the almost of has total consumers. incrementality second high-end to plenty Corona to product, XX% to this Premier the in volume brand loved campaigns XXth share for future light very the one the beers. Premier number the brand the gainer brands draft from the as launch about household number number expectations. brand family see growth as mostly continues million with volume Extra XX as There consumer market. top only domestic one holidays. the Premier from and gainer well with achieved share XX% product our increasing non-Hispanic beer the growth beer population and from on have strong was beer incremental last and speed-to-shelf to the dollar our be strong product, the Constellation English velocities Modelo To rate both outside of Spanish in sourced portfolio, for During drive is Casa football significantly with outpacing power being cases share the number brand gainer position Corona half gainer Modelo U.S. successful incrementality introductions, Premier season a been The canned format number the the in driven in with become Corona the in language equity The and for during investment The almost in media during short the sustain and not Corona Modelo depletion needed Especial’s Cornita the drinkers and brand we Corona has growth a throughout the its drive of Premier and spot runway Extra driver CAGR year has for the driven the healthy penetration growth aired broad but of we to regional Especial the accelerated Familiar rate a for that with league demand half share among and trends momentum, in the U.S. to in U.S. and awareness business by the expansion by quarter, year’s and category for Hispanic our Corona with provide seasons. of the achieved XX. fiscal one as year fall U.S. NFL X% are as which the also during Especial contributions of The and second [ph] continue the XX% for industry brand last record growing family of the into and for years. category this the exceeded the Corona trends fire Modelo well Familiar X% portfolio beer total half with aged as beer to to incredible continue the as the number industry most family one foundation top accelerating quarter. the be brand also will beer X first at one additional XXX Hispanic one baseball continues grow the a major NHL of share to TV capturing especially brand brand plans. the continues

brand, bicultural one During capitalized performing since Four Hispanic in craft we on products. Brewing, Xx trends the the hottest inspired has quarter, influenced This Dallas local high whose of XXXX. brand purchased beer, sales flavors, brewery grown Corners

in well our early suggesting market that alternative to has this that been opportunity current Our incremental a are at beverage incremental to as exceeding our product expectations is indicators test in markets test Corona XX% markets space within is beer least growing new the entrants Refresca the alcohol brand portfolio. with doing category. exceptionally

detailed hectoliter track with phase with and phase capacity as of fermentation, final phases Nava in fiscal The the our – Obregon phase From million a national select for quarter planning also is end Spiked add at retail we has is test perspective, are new the and in SVEDKA results we completion various brewery the Seltzer, completion. planned expansion production, of on markets Premium new beginning an we the Northeast phased design filtration on project site rollout focus next of XX the continued at spring with And for rollout work operational spring excellent expanded seeing space. which a planned and expansion As the during in result, XXXX. chain markets. the next

complete. which furnace expect we work plant, and XXXX, already at business. growth the business nearly fiscal to for am I the for foundation remain underway construction net the with complete momentum and batch sales committed to ongoing house with operating by with We glass furnace calendar this growth beer which excited Nava XX% our build-out we packaging about industry-leading prospects in for to #X and the the are existing end Overall, income X% continues Mexicali of of anticipation on, and Our buildings XXXX. delivering warehouse of range and in the targets

in ensure second business period head wine supply. positioned to lanes and the Moving believe our benefited growth quarter shipment is strong short a well that to portfolio when we our spirits, to spirits may peak and start volume for from freight in wine the that be selling

We the than overgrowth in – price industry. overall wine are U.S. the greater growth retail, in well performing at level a $XX of much point the that driving particularly is

brands U.S. also the rate. market attention would is that of the wine portfolio everyone this retail total XX% I trends. of price has of grown currently Prisoner the segment to sales for Xx SIMI, second Our quarter of more consistently with this Focus during Crawford, a This than growth paying higher collection to than profitability at net Kim and and we Brands X% Meiomi, as Xx off posting for all point like growth remind spirits posted the solid price rate more depletion Brands and business. represents Focus our to

Double Rose Our and high-end quarter included delivered Rye! American our Brands Reserve depletion brands second by Prairie with almost High XX% in which the like including Noble also growth are and initiatives like posting also collection spirits West, of driven successes depletion introduced Focus Band Kim Casa Clos tequila is Crawford, Bubbled XX%. of accelerating Box quarter for Chardonnay, driving newly growth Roses. and of our Black growth Bois Current Meiomi, Lightly du almost with Sangria, of brands,

like Our spirits with expand innovation to holiday Snitch, planned Box brand Black Barrel Sparkling, well & which chardonnay already in season new rollout. Rye The the is will Thief brands Aged upcoming the as Cabernet, Meiomi Cooper selling continue a as phase Prisoner for pipeline new

drive Brands at innovation greater can $XX value portfolio to our targets income to growth The are initiatives particularly point. at than range facing those in point the XX% dollars plans the decline. intact, to of end, that is less price investment spirits Brands our and particularly Therefore, with price end retail X% end our sales fiscal U.S. our growth optimize portfolio than higher and the guidance net our of we’re challenging slow XXXX and of some that on so wine also developing while remains to we we achieve. to and continue at low direct While market and X% non-Focus to wine focus at options of the make the operating Focus challenges considering the we’re low

for for optimization COGS place of capabilities improve management efficiencies, improvement, yield in blend production plans planned with have We remainder procurement to year initiatives the savings. our the and

offset the of to headwinds initiatives face continue these some expect we credit higher and including transportation costs. We to

addition, building continue support during the strengthen year to key the holiday our impactful remainder innovation throughout marketing plans we season brand and In selling especially efforts and portfolio. campaigns to will of the the build with

walk Now potentially that before continuous the and growth, cannabis the to of that one the space. focus turning and most minutes next we Canopy significant global with opportunities in to as best strategic you like highlights Constellation’s on the partner the believe I’d in rationale growth Canopy the cannabis call take align of the With presents our of Growth opportunity is through investment over decade. a recognized the emerging why pending significant space few to we’ve to David,

and over that ownership provide is greater space, than increases expected and investment sales than in largest XX% XX the to anticipated. market reach cannabis the billion This rapidly be next more up $X globally will time. than take a incremental in much interest billion Our one within warrants to in to-date to XX% retail us the include that $XXX is which opening years the position more investment Canopy approximately with originally our our to option

already expansion, opportunity capitalize global it unbelievable in the presents on space. capabilities and medical the why in to and cannabis market, year market With poised emerging XX% to Canadian in later Canada international have Canopy’s in throughout world-class the product production have global expertise largest Canopy the joint Canada, in currently footprint last established the world the So with in Growth the We traded largest are the this the the Canopy they a Canopy provinces. contracts to-date been They and throughout in and supplier all market legal recreational is Canopy awarded producer understand that partnerships. become publicly to leader Canadian closely month. opportunity. the Canopy and in market-leading are all in world has ventures innovation, supply cannabis via scaled only cannabis They legal presence development, provinces and a cannabis, of work the better the Canada. Growth? dedicated approximately will also production announced that cannabis is numerous R&D, participating cannabis

will global working having include use to winning the nearly formats the U.S. we industry global proceeds that forward, as needed building leadership globally single program. we the believe pursuing establish medical permissible Canopy and key priorities Canopy presently in this platform exclusively position cannabis all scale. with in Canopy by acquiring their the countries assets space. Canada markets to – Strategic XX a Going bolster to plans in be essential federally to cannabis or beyond investment to address is a

up cannabis sold they direct of and built A product the medical network In products have and the phenomenal supports and recently look and brands building who in recognized and in recreational while also Canada through approved various intellectual medical across Bruce Canopy legalized for new their market. existing cannabis Lin team Canopy’s on addition, business and strong stores a a forward focus to his portfolio offerings of recreational brands for platform across and online property they preparing Canopy’s plans Canopy opportunities suite that has Canada formats new be new a across are currently they as ramp I transaction of working most shareholders channels. brick-and-mortar are development will creating recreational markets. business. Canopy and to pending building a ongoing participation to patient with

increase as year. emerges. In range of pleased we investment, the very and I beverage our able summary, have for our am total in about our As as we to based the I year for the alcohol year-to-date the space cannabis cannabis being and results incremental to am we prospects to reap this spirits which plans on the our growth global beer, see in place wine that guidance we space, EPS for been core expect have remainder excited the the leader portfolio. excellent business of the benefits

be runway business, U.S. Given to further space now who margin the Constellation’s leverage like to that, review cannabis results would over leadership multiyear position throughout an double-digit I and the the in quarter. continue With will the I David EPS our turn valuation, compounder. for expansion a emerging believe market David? attractive Constellation to unique will the financial for to high-end beer call

David Klein

Thanks, Rob good morning everyone. and

our tax year narrow particularly This by beer For the selling to projection senior term QX, with and to guidance we expense to impact the comparable and previous EPS interest growth, in basis impact performance us of $X.XX interest is associated Canopy our We investment, transaction to October. diluted expected increase at comparable notes versus of diluted expense plan strong range additional to our summer excludes on full a in generated reflects basis $XX and marketplace close with $X the primarily investment of and business with of $X.XX favorability rate along EPS approximate comparable results Canopy XX% key These an approximate season. have billion This loans allowed basis growth. operational to $X.XX our which during estimate finance EPS and to $X.XX. results. $X.XX with fiscal the this ‘XX to end million the the $X.XX

investment $XXX cumulative our QX in $X.X from results. fair for Canopy value increase which excluded XXXX since gain a November current comparable Our quarter, was during in the billion. basis of our unrealized is results gain million growth reported The reflect basis unrealized our investments the

review benefits increased QX generally selling increased XX% a Beer increased financial year strength net XX% and fiscal to pricing Depletion Starting to growth This nearly costs in key will performance ‘XX. operational of QX excellent of where and upfront full QX operating for X% primarily as season X%. for first our are for volume let’s of first showed revenue of half The record compares more from ‘XX. due focus the to and I X% to across fiscal investments. almost margin marketing X.X% XX% the marketing higher with and to transportation and the increases beer, as growth for half investments as sustain the introductions results. on outlook for QX. as execution and as performance spend well investments were as percent our the within comparable Now, continued estimate came and some growth planned basis into Marketing detail, than we Premier a with we at basis Corona sales all shift momentum Familiar won points ongoing summer lower to QX decided the Corona XX portfolio. by strong spend Marketing to channels. in previous XX.X% offset on

to note ‘XX increased for that the weighted $XXX X.X% as first to a We half of in would Back also of of continue sports brand ‘XX XX% fall fiscal range marketing percent I net is revenue $XX segment to during as of marketing million. target approximate to beer million XX%. fiscal important to be QX part half and spend of sales XX% expected the the building our season. efforts depreciation toward

XX.X% expect we prior and operating expected result. continue For income in range. X% similar Full X% operating our portfolio. fiscal to the of to sales growth pricing year’s includes to the is beer targeted to year X% XX% Mexican be for ‘XX, margin to This net

QX headwinds quarter For just be from gross QX the timing that spend to is prior primarily a to marketing fourth the year, I third with increase due above the of higher perspective, and to we From expected operating continue outlined. year prior below quarter margin, to the even expect costs. year margin the quarter transportation

supply. success strong growth timing in net spirits, QX saw primarily key depletion sales we the remain to expect we as and outpaced of drive shipment tight The we Moving volume to X%. shipment lanes U.S. season for U.S. the to selling carriers of positioned as U.S. volume wine volume due ahead and freight holiday ourselves

XX.X%. We experienced income a down operating second and quarter result, our expect reverse the in and third quarter net be to most and sales during to of timing the spirits spirits COGS, single-digits. higher benefit points and Focus innovation Wine XX Brands and to and operating the low transportation wine for as pricing grape was we mostly costs primarily to key marketing decreased decline expect quarter favorable shipment third increased This initiatives, offset which margin in basis by and due reflects investments mostly SG&A.

Therefore, X.X% As performance to Growth The be corporate of in wine portfolio and debt during a wine growth reflects are QX depletion earnings focus X% though sales X% of reminder, year. than due productivity the to support Vintage expense people growth enablement XXXX the QX driven challenging organization expecting continued equity half will our spirits premiumization and to by the been primarily to the Opus business. be enhancements our of end investments expected X% and below and increase XXXX, income still ‘XX digital initiatives. Even fiscal be operating and ‘XX net from and primarily previous higher last the our the across this Interest or Fit fall on released expenses for Opus in spirits is balances. One our has increased average efforts to year. we market fiscal and lower fiscal smaller first

be growth Excluding in $XX to impact ‘XX. million to income fiscal now for our increase favorability the of interest our $XX interest we primarily now approximately debt the $XX to venture income fiscal of guidance investment, line approximately in additional decrease net statement, to non-controlling we projected at offset an million by in the expense of to partially reflects to which expect our million be glass attributable interest joint interest million. $XXX million of range our the ‘XX Canopy $XXX expect fund pending The expense

expense cash of Canopy debt to debt funding we interest our totaled balance end at fiscal related to for net our range end billion, the decrease When in hand, be $XXX ‘XX. As expect $X.X net at incremental million of the ‘XX. growth mentioned in the a earlier, fiscal $XX investment the from on the factoring August of million

Our net year. of paid million X.Xx stock and continued of ratio half cash debt to the $XXX shareholders, August fiscal to Mexican X.Xx million basis of invest while first ‘XX, leverage operations dividends the at comparable EBITDA to our from return of in the to we at and of end down end $XXX during the with repurchases moved

in XX.X% reflects XX.X% tax The versus benefit. rate from year. effective partially Our comparable lower a basis and at tax foreign on by last reform earnings compensation came offset tax lower stock-based decrease benefits our taxes

rate change and earnings. in reduced fiscal entities be This tax also we I rate driven The foreign the Most largely tax result legal stock-based expect not now tax the foreign for of QX toward approximate tax taxes year For projected is full ‘XX, guidance primarily XX% decrease effective rate previous this the we the versus weighted for is of our the structure compensation XX%. on of to accruals. expect lower benefits our lower a that would being will QX. that by recurring. to certain note be lower

XX%. we result, higher a rate to rate our XX% around to than year tax our QX full at expect As be

This additional $XXX the after the share diluted to make completing we ‘XX We ‘XX our of additional average in focus on Canopy. year-to-date shares also share estimated remainder de-levering impact now investment repurchases repurchases. of fiscal expect during reflects don’t outstanding plan to We as the million. fiscal weighted will approximate

As aforementioned now $XXX. to expect a the range full factors, our of comparable $XXX in EPS be the to diluted basis year result we of

reported growth our of the method. new the in detailed related new comparable Our earnings in It account not in impact Canopy share and on stock subsequent to Canopy of additional this and earnings the investment. expect original on any which shares original the price a Canopy pending change for of comparable we accounting also X-month excludes to adjustments, transaction, the the to of After for be date will be under lag. investments completion are will excludes and adjustment transaction basis our reflected balance the Accordingly, investment, investment in fluctuations the sheet. Canopy periods Canopy’s equity the of the the At release. close, equity value our due portion will of shares, equity

from Canopy at fair continue our original the earnings. warrants, our and will addition, basis In will be to comparable the fair value new, exclude we value recorded in changes and of warrants

adjustments continue transaction warnings the equity comparable related impact and evaluate to potential to results. to the on fiscal We ‘XX

operating improvement cash the activities Moving to The fiscal as million half free significant year. This CapEx. which generated growth ‘XX same net for of period million primarily compared as spending timing the less first for lower $XXX lower to still cash by year. free balance CapEx, of we we of we for define is primarily flow $XXX cash flow reflects strong flow to last the due operating strong cash plan CapEx and the have provided

are $X.XX range unchanged Our innovation we and while productivity In to our to full the to and fiscal drive spirits wine our $X.X we of portfolio across to remains CapEx flow year ‘XX guidance enhancements closing, be $X.XX working in and activities, billion premiumization business. billion on to cash of free $X.X expect continue focused billion. billion

beer that, year generating and take Rob profit and Our marketplace to growth this and for and beyond. happy us questions. positioned performance. to to These efforts financial With your top-tier I continue continues operational, sales impressive deliver have are business

Operator

comes Our Instructions] Herzog first [Operator Bonnie question you. with Fargo. Thank Wells from

Your open. line is

Bonnie Herzog

hoping quarter Alright. and guiding. which what were bit Thank beer I were your the you about you a ask in a more Good guys to quite margins morning. you. was bit little strong above

fair to a beer higher of will be then So, fact in full strength little the given now seeing? on Thanks. for want could just get just And are to you assume we it some more bit there? on year, margins sense a that the drill your is some drivers expectations the of down

Rob Sands

Yes. Hi, Bonnie.

the have is suggested more for came was spend and it operating was all expectations margin for expected run of the operating quarter which and virtually like just actual in under primary difference had XX% really we the difference QX standpoint, performance between land of being, us from That of versus of where record accounts may margin kind that we XX.X, our with So, timing the upon just to QX marketing our mostly the in marketing a margin from with spend. X%. an based line

invest margin, operations the major venues As fall would we to some the in that as sports the some season. of be lost we from – facing of to don’t in a intend and the teams I for gross the outlined behind that really our record is scripts, point us guess also initiatives benefits I from though we generated we started provide the freight we our offset standpoint. helped us headwinds a to thought want

that say, we again slightly track us less suggested would we came set in on XX%. I versus which than achieve our is operating in just from QX. And that QX kind where shift really as to year, operating of general, with flattish guidance keeps quarter in out to So of the last margin expected that spend marketing margins the we

Operator

from Thank our you. Caroline with Levy Macquarie. question comes And next

line open. is Your

Caroline Levy

Good on morning. Beer yet note strong growth. got looked spend much you expected didn’t you that pretty you’ve spectacular, I depletion marketing do and a as really as and

higher am think seems than be even And not and more Has for just in Thank other just sell talk time, Premier XX. the little you more be a incrementality sort about great? XX, little us you is I look and of at how we out originally if can So, significantly supply over on can thought you. would beer to what out? on wondering detail you legs a initiatives think and further has, the playing new any been you shortage again, Do have you Familiar Premier? there

Rob Sands

Caroline. Yes,

in stage and Premier as Familiar, Premier the say And I expectations. our well. in NPD can you extremely our been particular, and and Familiar all at incrementality outpaced has this has performing that we that think of beer on noted,

I So, paid recall spending marketing that and the on you initiatives. quarter, as of really prior marketing year in this quarter has had spend off first even frontload which our for we to the all we some first highlighted did think our of probably

really remainder forth family can Modelo, enabling don’t I you the that momentum Corona the continue IRI. as we reason the X% year depletions us As which our the extremely family to say in in as would and that of have brand Modelo that to make of roughly performing the and should see throughout see, guidance by we why both not any well, XX%. been reflected reflected Casa put

generally, I we that Strong beer all takeaway, cylinders. on achieve. our new to really distribution believed than is well, able the business we products say greater than is incrementality a on to would we be working marketing been consumer achieve hitting to extent on expected, products those our So able have is higher even that would

So, other suggest in is the anything nothing really the achieve there business do beer that would than the won’t we to horizon that guidance that have put forth.

Operator

you. Thank

with Grundy Our Jefferies. comes Kevin from next question

Your line is open.

Kevin Grundy

everyone. Good morning, Thank you.

Rob Sands

Good morning.

Kevin Grundy

congrats on the come – the to quarter wanted way. first by back I to

Rob Sands

Thanks.

Kevin Grundy

back come to to Canopy, we if wanted I Rob, could.

Rob Sands

Yes.

Kevin Grundy

out you’ve other considerations the a in future? talk understanding decision potential the be limited to and impact at some larger what last, that naturally given also you bearish? that the timing There’s in Canopy is Can guess, from stake, to questions about for warrants anything lot from exercise you obviously investment? is makes talk the investors. And earnings since intermediate you or near recent about can point bullish there may respect that. there publicly equity you provide Thanks to anything among you I the with months traded, term Can learned, around announced of you

Rob Sands

Yes.

legal the say October to we marijuana recreational announced anything the right in that say that bullish So, becoming on have projections overall since be are would the we we I of in changed. more really next cusp not XX. if I couple the if that bullish, market extremely haven’t of would mean, continue on deal. Canada weeks on I

most the in recreational think – billion $X $X I wide billion cannabis. in $X Canada, I wise $X think market somewhere to for predicting that it’s but or legal some people spread, range a are pretty billion billion

significant the a months. supply XX% of I to as secured it has script, over share Canopy we develops As so to my XX of in approximately call it take the to XX next XX contract, business noted that expect

future. So, No, that feeling don’t reflected Canopy’s or results the good in I we the about how think we’re results. guidance – position pretty will haven't need earnings think position any take we really given approach little be yet, of and more we that in guidance the latency of of our to element on bit a as a equity that the really to I

think goes able get becomes our legal recreational, be under we and on. to we once history little that I we’ll So, get as address belt, time better it a that

will premised mechanisms. that in to Canopy all happening category States something of a another shouldn’t already have returns and very very particular had our countries will quickly quickly are Canopy nothing, take in, be I poised that the develops we’ll reality has in recreational counted frameworks is and see of It outside there we to are of that all will has Germany, those to in perhaps Canada really Europe we’re like the too to And investment Canada schedule are November largely after and one leading Bill markets which David front. of legal, with form a think having think this was as different expected. United able things the federal the we United that. significant legal that the is off markets developing there nothing and countries said that lot the States That sort participate we an the and the eight States, the over see participate be settle that want in as of how the see states pretty those follows anybody which strong large of be suggest determine the our in bodies, establish along, through in legal. large history poised Western in on foothold looks regulatory on and legality, than and the in decriminalization that that where and to the in that Bill, to at which leaving are US, Canopy that course, then and really is much but – and we and marijuana establish the two won’t and lot is those becomes states of level recreational that’s said to medical very moving Canopy legal little made solely of the governments like lost the we enacted it world why a positions list first quickly of on regulatory it their is that said, certainly having moving that recreationally already is investments ballot it CBD, some United oversight on UK legalizes to – And Farm states then the eventually well-positioned all to We meaning big that states in. therefore in legality general, a I markets become see and the Farm talk going be the interesting the that be market the to with that positions participate a states. I extremely that, the election thing on medical after of governments major taking

recreationally percentage So, where states of in in large already States the legal. United a it’s the population

we’re hundreds far of the company the that a think the next doubt world is position we billions So, capitalize what market of XX in the of going on best the dollars. a company or in absolutely to without best by any over huge be world in to years,

be are are branding also be need of element businesses to of is that success going to and we and no Constellation our top folks that’s the top key firms So, investment to because player and this our that we all people like nature meaning branding, in of Branding, we’re have got key and in we Canopy unturned addressing important. regard the the of And future. science, working dedicated leaving to on agencies front those development position our every consumer a really the with areas through our on products, stones of business. any who to

So we see We regard. very are in positive excited. that future

Kevin Grundy

luck. much. very you Thank Good

Operator

from comes Barclays. Lauren Lieberman question next with Our

is line open. Your

Lauren Lieberman

was point I you Good of bit be pricing is great? below suggest price that kind price a above you talk if of Thanks. performance that wine $XX the that than about price my the the alone know could I can about definitely actual in have morning. mix mix why you business any driving Great. downdraft color business so to specified the hoping be or be promotional on terms $XX those and and little point should more in just that offer, think curious then I end all, just Nielsen if And anything you no you. what’s I show on difference available and between but and data Thank your a was to would could was thought at focus data of or commented that pretty And less correlation the end. talk be overall low so business the your performance of year-to-date brands, high X% positive, channels. category also might seems will is IRI the business to final activity you mix line same question in in to

Rob Sands

Yes.

don’t the say if that consumer the really historical run, the other would the to different above products it’s entire or off a see you significantly I run growing suggest of business although been And or has long the wine the the anything near-term categories. we U.S. is – as from going all at least any to at that consistently So bit over sort range. historically which at in almost look the long mid performance, over it single-digit category what it’s at is rate grow low that from that

also time portfolio end the the perform continues on on in same and above sometimes to against high with lower our obviously to range say that, results high a low segment. the to end be taking it’s goes terms premiumization high with continues in participate the are of in I accelerate of how end significant to think continues we in. becoming focus with strong business, we our time single-digit the a certainly consistent certainly And are our the in efforts the softer to and as I brands and lower of running on There category our would focusing market large deteriorate we advantage all say take of I business at the the So the very position we NPD $XX And the will all our growth well and range. certainly mix And and end end. double-digit the remains end have to very in high it portfolio we reinvesting continue low change. high that the to in end

half see second outpace as timed our programming. positive the in our premiumization how brands, say better holiday of the for on the and leverage first of have growth to expect the We see year I lackluster, was we expecting a but would year, significantly on us half should year the place are of lot better and depletion season plans we expect the drive based of the price popular brands our meaning kind result basis for of depletion so of we premium So do see a we to in mix. to the remainder some programs which

line on have in into good top the would So guidance second X% wine strong hence line and is generally say think I business the business be about X% of will spirits that the the the and and we I going our result. pretty bottom are general we maintained the which favorable business wine half to the business.

both in general. said products category As consumer outpaces I the

a wine an all everybody the the margins if think which is our it’s was at world it business totally terms the beer and of company outstanding of If business I the line step-child our with generating. looks basically of business. still performance you kind the like across no any to look it we in beer the that’s of business comparison in would there that ugly like that great in have business really size in unique performing top in a kind alone margins margins business, it’s mean it’s

the very little a be perhaps and relativity are they bit is little People overshadow the involved business. of continues it a to a it business good So in as – which on very tends there to focused wine business should be is that. beer

of focused brands XX% our the So constitute about business.

to continues segment. that. above in We In good really the the the high growth segment high got all business the words And other share $XX of gained we growth $XX our have the in IRI focus in and above is. our focused grow in where single-digit that’s actually is outpacing single-digits brands, the

plus really paying business, high I business is Total the Beverage TBA, We that in and our have Alcohol wine off. got in say double-digits strong operating ROIC well the performing general is think platform

been side Northwest that the things spirits our Pacific wine, Columbia millions consolidated where in things reporting well. in done I of consolidation entire that business millions the And of seen have been extremely has Columbia and like results of terms has accelerating of a press actually Some we distributor, have the fantastic gone one Columbia think are through and we lost job has what in beer the cases. particular. on wine

go malt of created have which we also continues is instance interesting our through seltzer we in put spirits network. based things through which that network therefore the spirits for Seltzers, a SVEDKA historically had beer product and being have we So distribution to done which SVEDKA our brand a the lot wine and

to factor their very position probably So that use may are can we be other And the networks Constellation important be all at and below to continues profitable has is ways but are portfolio. in single then both alcohol. large beverage business. The with at our entirely category X binding drive we that our all X our with with the of – growth split categories they kinds organization retail category alcohol retailers and the one by have beverage strong the to growth the retail the people, number because deals most continues most provider it this retail of beverage looking or to alcohol very, most at a most top deals up, of

better driving that to strong declines as the having get retail not have going explain are silk out how say a okay. and And than you the I at are at retailers, in sales are ones with going retail a wheel and often the our hand number doesn’t bets of a our and large are we growth to kind about where that’s trying you we can’t any therefore that make all make in And of customers. percentage them to going growth say deal that is It retailers, and going the continuing growth squeaky hand a very the and up, of position. having hand ear. our puts who of when ought when the That those purse for you and you talking guys us sow’s great when by our the to the can and talking get So sales far in say I are like growth to declines guys story the they fact a straight provider any we out grease. generating in out to how to versus figure to to story are one or

I very in think we the So good are shape across board.

Operator

you. Thank

Azer Our Cowen Vivien from next with question Company. comes and

line open. Your is

Vivien Azer

Thank you. Good morning.

Rob Sands

Vivien. Hey,

Vivien Azer

is them alcohol part you’re any is around as of part with cannibalization, is there Canopy forecasting of presumably calculus with at discussion working tough to wondering, Growth But size exercises, was I David, all? admittedly of that Thanks. illicit and the trying transition. helping that which the Rob market is an So, exercise and some a exercise,

Rob Sands

legal states the No. I of whatsoever is We the see United no. say no the would alcohol straight-out, in and answer evidence cannibalization. States especially

about as So, talking close the our right the be cannabis say incremental going business we now for it’s in sit to cannabis think probably XXX% business, when about position us and to we incrementality. here I’d a

So, comes it no. two a of answer lot this is conversation number a defensive move, is okay, the one up things,

we’re defense, these to other offense, offensive business than have got results going great for we positive, we as our core results very This suggests We’ve business and business as is a fantastic core anything move. on we’re projected see year, the you from the horizon remainder to that the playing not our a in offense. confidence that We’re and lot can continued and nothing it’s be an of in of its be. see that playing

with first presents and addition develop is we opportunity to our that all, offense we think of it Why and simply develop very we beverages, very for okay. did to for that’s core joint on and to would in do another okay, this going business. this, Canopy category, to it in got Constellation because fast venture playing involve that a very we another this We’re aligned large growth

we to it is is that that to participate which us segment market, no forms therefore, should evident a why only relatively As whole forms other we a other interest we beverages minority – i.e. and a have in for platform, market, be had going and can we quickly are all channels take became going in when all progressed, explosive there world and the that advantage develop that instance medical to around reason which the channels, very really we of small and had a was of.

we as I that core it bearing one So, totally ever this, did offensive, number in can tell stool the Fortune incremental, that the no stronger consumer I’ve part. made. as XXX. to suggestion company than probably it’s didn’t why in we another products said, is that of our core any our had leg that we growth about We on the whatsoever add Constellation completely totally and continue the heard on concern optimistic, have can business offensive business, do because completely you we’re

that’s So line. really bottom the

Operator

you. Thank

Our next question comes from Andrea Teixeira with JPMorgan.

open. line Your is

Andrea Teixeira

results. Hi, everybody congrats the hello and on

Rob Sands

Thanks.

Andrea Teixeira

cadence beer going the I do the and appreciate the margin color forward. on

now. my on So, are is place I understand the question the negotiations beer pricing, taking

and what transportation low aluminum typical passing training the in and are in embedded the pressures. of you guidance terms your hearing cost from is on So single-digit pricing

can release hearing about distributors terms if noise the if comments distributors press or wine with about along and beer also there's I press in as consolidation some you mean, is – of of news offer, a can So, well. you lot

So, wine mentioned productive I think on the that has that, been side. you Rob

I So, you Thank can as wonder the comfort offer you. on beer us if well? some

David Klein

are second question a pricing the and letters – from to take I’ll the the so So, market. I yes, pricing leave standpoint, But in the Rob.

out the our receive we fairly that at that seems several increases years. last price maybe any year over we increases point. not it benefits seeing seems year – especially market the putting this conducive from are full the to includes We’re the guidance price compared to pushback, And expect to this

Rob Sands

in I said parrot that would regard. what Yes. And David

continues normal in if significant it how completely we would you it as to The the increases, better environment the the a we in on hasn’t is were has as better even market where just that I range. X% past as Our absorbing year pricing saying to than price I better on would it that are scale X% been the be that for put this issue. to been say past worse opposed pricing probably is of end have

on comments a as On that and Northwest major the was spirits I on and has well distributor wine major, wine, well beer and consolidated that across are beer and wine, focusing for spirits and consolidations in the whole my beer player we with as we while distributor. consolidation very worked wine,

terms those be have and in to our will those efficiencies instances that of some against create in we in local manpower against able directly to by in significant of we terms street, being of in efficiencies to that the markets brands the especially consolidated areas dollars where done our it’s press, really those some been in moves the specific brands levels some benefit can Southern had our really in available provides very have it highest shares, market and most of distribution As that opportunity California created examples have on that consolidation about at apply where brands. taking those where core our an otherwise of marketing

our accelerate bad performance. about before jump that’s we results. not is were and already a improve what Canopy about to of to we are is what transaction would the get some say even for of am down these company to I really I or to the good turn we action and one waiting our And sitting moves Constellation to hallmarks So in take element say intended around relates business

are opposite really of that. the quite We

all we When to off to to applying are are in turn that better with fantastic is business. bad, the that’s great something jump it in play strong sitting for it actually to the XXXx of it attitude, some because going around too that’s very kind are than have of it’s from bad we ever in than an late around turning It’s then opposed business. waiting past. is it fix performed We against really already all effort in and a and performing our And we accelerating turns thought as position position. a harder

that’s So in truly an like and a Cal, lot our mentality moves in that doing both distributor consolidation things business a core Southern our business are of we and it’s the platform. already offense something lot about of our strong playing accelerating

Andrea Teixeira

That Thank lot makes you sense. a of both.

Operator

with Sachs. Goldman question next from comes Hong Our Judy

line is Your open.

Judy Hong

Thank everyone. you. Hi

Rob Sands

Hi Judy.

Judy Hong

others question, So term beer are continued you carry see least longer or and I that half we from despite low you the of benefit innovation year-to-date, X% particularly products, being the sales am not comparisons is Refresca different of still kind going fact of bit a to at on just sort guess think raise anything have have of are ‘XX? Premier do sort contributor that those as Familiar to the or just given of XX% curious than think that, that other into lapping changing that first just the I fiscal load to that the mindful XX% innovation growth more guidance about do standpoint? forward XXXX the so And year don’t that the big second how I not of of some your this of. on just be little there innovations decision of a then we and it the those you the think expectation success a Is really the end lapping will conservatism, is that innovations should contribution of you like half,

David Klein

Yes.

continue where it question medium-term then range the shown high a our there. volume X% feel kind to for perform guidance because will have remain business we guidance, the we deliver into your standpoint, the line, of of top of continue from to committed lapping where to second kind we Judy, as business around We innovation, it builds single-digit just comfortable think to with expect So, growth. numbers of this the kind XX% performing. we that And is to

going be think lap Premier we big we as Even to a is brand. innovation,

will of next go will So, not market the and it – the Negro. there Premier think bullish times, and X will like splash very a And it’s we out on Modelo core in be a portfolio year Especial remain We and big Pacifico decelerates year. going well. parts to our Modelo other the lot then actually innovation in of do continue very into and

results about are growth consumer continue the now to growing and said, in growth work So guys. to around distribution demographics to of continue is we Yes. that run you will we Refresca again, the to have some to believe going innovation. for deliver going But things will as there we think role same like are that a play our and then to innovation I talked script? continue committed and be our algorithm, that we the drive majority expect committed areas do And we But will from as we we his which well. see remain those to Rob

Rob Sands

I Judy, guess answers. I And would Yes. the that presume questions, add your almost

products. be on overlapping the will the games some distribution new of We

those to those to is offset going will that help for looking incremental a that us. we asked. velocity then as And question turn Refresca provide on the On like on that are our attention to building going performance be velocity the new build products we other overlap huge it’s some hand, products. will you new opportunity

that stellar extremely brands think now the really in all beer category is performers I category overall alternative the with one of you performing well. know numerous the

even the test that. that and I on is that think Victoria, the of Corona opportunity at opportunity. the okay. Pacifico, look we based and We double-digits. a a business, like a Victoria. strength that forget is our to continues opportunity the huge growing a be in continued Victoria Corona that’s tailwinds which Take high secondary on big Corona franchise think and we let’s Refresca about certainly markets think that have the then the in brands huge IRI demographic not given of And some now So name Refresca like

national, business have we opportunity already So the double-digits. high that’s to that the is new our I to huge i.e., in that’s do going in go Modelo a which brand to as more some beer already of then jump secondary velocity not think is which to the we and that NPD in the give marketplace, have on drive only to us you have NPD continue we Refresca, general, to portfolio. got grow against we well continues growth opportunities. And smaller to And brands the then have strong can Especial, provide growth going whole

So, whole we see across that portfolio. opportunity really

a very Kim which I Crawford, remain large like couple. a already many we very brands On the say and that the really profitable opportunities brands Noble and like Casa the would for growing have are unparalleled strong. spirits and are that spirits like more, could is brands West both and that of Prisoner, name like wine just whole side, but the wildly therefore tequila wine name brand, to potential terms in I portfolio across the High

Judy Hong

you. Thank it. Got

Operator

with Sharma Markets. BMO question next from Our comes Capital Amit

open. is line Your

Amit Sharma

everyone. morning good Hi,

Rob Sands

morning. Good

Amit Sharma

Dave, as quick as marketplace pricing are through so question Dave, are for Rob. regs you pricing as in for and already. you one saying, the goes

around us you come directly Your understanding so talked little at Constellation? year that in expect bit planning give with a could on we ago are is be the if of only comes as based bringing derive under and CBD going Canopy, a cannabis. a Can on income aspect product legalization could And or a bit that you of margins how accelerate of already little more contribution that to of bit Bill you you through partnership right? are equity the least little CBD, higher, gross why maybe level, gross shouldn’t tracking on then margin Rob, pricing Farm

David Klein

Yes.

think gross question, everybody this and bit headwinds the on of areas. the margin with I commodity in else from on you of freight some hearing industry So the are headwinds little the in

that environment think operations kind outstanding growth spend team margins margins in so to the where that’s job be of continue we place And and with best line roughly way marketing by to to back gross grow that driving to as we margins line expect our also as have prior environment is keep almost much able the that XX% business the where our incremental to which to year. ever deliver margins best over our the are then can. that headwind the but we that have a operating in business, will a because we in And expand brings we drive we our we are as said business will believe we brands, our think continue focused that to way for growth the doing want expand quarter, top We operating of on in we us albeit possibly the year, has full but beer will gross year. slightly, an rest the coming

Rob Sands

be the both. earnings answer well Yes. in the as as in Constellation. Canopy And to is your next directly equity could It question, reflected

So, number the clear, just producers of Canopy one largest is one to world. be CBD in the

would normal whether exactly CBD very from and obviously, works that the permittable, and wine, be we they assuming to but well distributed are be channels, then law CBD it’s beverages through how beer can depending Canopy produce network on not the retailers. spirits maybe could the imports to through everyone, possible So, us, sold and come product and to retail that the

be in element Constellation’s would it So obviously of business. reflected that

earnings, world be as answer wine, Canopy in So, one producers the biggest the in CBD earnings CBD really and with probably Constellation’s networks. it’s beer already mean reflected the is introduce of beverage, we our potential the has in not equity alcoholic, and spirits which being both potentially through necessarily it the to that doesn’t

Amit Sharma

just the color us can you CBD? the bit size give Rob, that potential on a of market of little

Rob Sands

immaterial I if the prognostication looking that don’t would as say on size that tiny looking say speculate that what chatter about in point. lot be I at it at or Coca-Cola beverage are well. the really is can’t I the companies exactly a I is given market companies this of on there like United it it think of at as that could major well, would other States.

non-psychoactive the it’s potential. of I CBD got of So, a one think in cannabis. components is lot

as CBD has science think fact organic said compound belief epilepsy be FDA there products, the the market drug that the is And in that approved a in as many well that qualities to lot as that are very then general recently say curative other positive inorganic just organic, I that health people maybe big. or and an could CBD States of aware disorder. potentially would childhood seeking treat United benefits first has CBD Although I seizure you so

have properties psychoactive would said it that a component, As in. be not it’s think has consumer we the but interested I

Operator

Thank you.

with comes Our Bank America. Bryan next from of Spillane question

Your line is open.

Bryan Spillane

over a bit think that the of ahead variable of quarter I or factor out And was part everybody, had Rob California. is wine I to a in just potential about have morning of of quarters? little a about coming of of spirits that shortages, freight that little color some so we this you talked to remarks to could bit in good ship the one freight motivation of and you potential forward question, the prepared sort maybe as Hey, looking we just get ahead is to also add that, just sort think are couple next and

Rob Sands

Sure.

we word as than because little always of or the beer little your normal that account a we any word in marketplace. into something of well we so first the really problematic terms keep is there and know holiday shipped creation and other us. to that in to know that half for that think build we a good as matter prior that it inventory that then take little to dollars efficiencies I I that always of October, for season are the otherwise is but we offset kind December. deplete are have about shipping. It’s we products have So wine, good to I have that the just its tightness beer, more a But to mind you probably huge these positioned shipping think spirits. OND depletions want not material I is some higher our relates little to would bit costs versus and as has and answer say during David see operational things November have a more we should don’t to we in question said directly and talked

we we totally on said there no, wine we it and But – really sort got business expect more see tough business the like has lanes. said well don’t the increases So to hand and in largely we wine the is business matter nothing to expect something under especially concerned particularly impactful it on it, spirit get seen. shipping be – is well that have we any cost a side and are minor have we fundamental be as beer lanes, offset answer there to shipping would that don’t of everything is we to just really on about, David it’s

in the in shape we remainder business availability good of shipping costs shipping and So are pretty the and the on whole throughout year.

Bryan Spillane

Alright. Thank you much. very

Operator

you. Thank

Robert ISI. from Our next question with Ottenstein comes Evercore

Your line is open.

Robert Ottenstein

and very Thank you Great. on a congratulations much quarter. terrific

very hand side, a the highlight opening this regardless comments, there margin other one runway over was hand, on you but about the You also in on job down understand on talk the we and margins for progression margin, gross business. have even margins the your think the a of expansion you various had further beer nice the beer on quarter I done expectations the marketing on in in that nice quarters timing keeping record that

assessment of give the on the I'm just business, So, if us wondering you margins latest medium-term could for outlook please? beer your

Rob Sands

Yes. XX% that, in as range sort to I’ll simple I’ll of that. but let XX% expectations our that just are David as that address say

flat expecting of which relatively to factors second whole year. for we’ve to slightly headwinds. the some contributed the headwinds quarter, cited offset are outside some already be the but about, margins talked You we have that There in the margins we’re those

think maintain I going David? approximately that same to the So, we’re margins.

David Klein

Yes.

you first I’ve being we make of all, as to this to our the margins in said can. I we team So, everyday Robert, before, high but – possibly think as comes our trying

long playing drags we can potential over holding where for that had and want we time to and even maybe expand there just out know had possibly margins, we I operation just us to I we for in standpoint our get standpoint talk it can. about of last say of to around enhance on a view in kind from potential have being we time clear of when that positives a from year as the way playing much can could But the say that environment of to headwinds to talk long get a few that about this of that period really seems anticipated over where the our that as is margins line margins the prudent these margins do for time. exuberance a we we know to we in. what be them without as we because a say pretty lot us an things would a about benign this be out is have of unrealistic about we peso So, and the way. a and environment to continue to lot are it's pricing a enhance kind years our I'd had we trying was we could existed But favorable pricing commodity period would

at to we about really some topic margin a We’re improved we’re perspective else and good seeing be everyone seeing that freight is helping talking bit that but this the margins, things of from operations happening on for a driver are an point. also drags like

Robert Ottenstein

the that help presumably can consolidation side? distributor your margin Will on

David Klein

our at from activity. this at that driving we’d grew expecting have we to in growth not business that Again, several the enhancement is be do everything – next that are margins. a happy get Again, We margin years around of sort we for we built really business. XX% rate

Rob Sands

however create to improve distributor an the the therefore that consolidations where are our that brands behind our and to willing invest more margin efficiencies on opposite. I that extent environment our business would distributors the distributor say creates than

our of for on which the should part the be otherwise results even will would business, is to better everything not drive actual sales that remaining thinking then equal. growth translate brands strong this us behind results and case investment and behind if the back our distributors’ than continued So better

Operator

from our you. question Research. comes last Brett Thank with And Consumer Cooper Edge

Your line is open.

Rob Sands

Hi, Brett.

David Klein

Hi.

Brett Cooper

can I in. them slip if questions Two Hi.

in at the the if you're view when a wondering expect guess specifically you in have seeing and you're format looks like on get talking looking trying just beer? to do to which your could offer what of off First cannabis what the then shelf particular resets in views authorities, are what future? of Spring I And retail you guys fall from terms in distribution you'd on terms front, and to you format Thanks. regulatory

Rob Sands

beer And as in question general most historically giving and should our first business space largest and more I their their be the provider probably said On a supplier. Constellation lot, I we’re retailers therefore is growth to we think is because the acquire I more that, and that resonating continue gains therefore do and we for make growth one portfolio, to portfolio provider said number distribution profit and many our which retailers. space as profitable

– United talking more really terms well but now and we first this to second answer in historically think probably the the that And about your as to it. management, on that. call first and we think politicians. what So, that’s talking phrased that’s referred of that is going of I In category our shoppers States, of and what regulatory shoppers’ to question, call programs, then I it sort bodies you it’s all part to

to regulatory and the not are definitely government in We are decriminalization Canada, first. are of hump in talking because to anybody, the the because we that are to bodies not then talking legal, the And got we about through have that and we really over participating illegality. of In the channels. Control sold And states be how Liquor direction federal example probably allow initially to mean, get to that, Ontario government LCBA, the it be good is to it decided recently, Ontario the planned through of Ontario to very changed what was going I go through is sold and where a then the Boards. retailers. product private

and Canopy bought called Smoke. know with for know, is branded Columbia prime of had branded in stores Tokyo Originally, of I their our but developing stores stores may in brand and secured done private is put are think a our British Haiku of stores Tokyo in, of has in and stores course able Smoke gone things the already even being is in lot and you and of we that Smoke British to provinces. out one company or to As Columbia. in private that other in stores may And retailers Canopy developing stores and outlets anticipation and their forethought a not called Ontario the locations that’s one and of Haiku formats retail the Tweed have Tokyo Ontario

that speak, we Canada point to in we whole be in ecosystem are from integration, vertical the as profitable the developing brands well-positioned in will a control, around and of the So, are so particular branding view very well which Canada. to

Operator

Sands would you. I back Rob to And to call now like turn Thank the remarks. closing over for

Rob Sands

me to with business the Well, of close thank And the we in strategic we to our cash discussion out in to drive future let say, strong of you while reiterate allow investments significant make us everyone. quarterly flexibility opportunities I confidence flows that long-term results, our growth have generating as very would the upside. growth our like that the ability

and some call next safe is for to during a remember Our holiday of your be sure products season early celebrations please enjoy January, to our great have scheduled so friends happy and quarterly family. and with

call great again you thank have a our and for So, joining day.

Operator

for this gentlemen, day. Ladies your today’s concludes and and have wonderful a participation Thanks conference.

Constellation Brands (STZ) 4 Oct 182019 Q2 Earnings call transcript