STZ - Earnings call transcript Q3 2020 | Constellation Brands, Inc.

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Operator

Welcome to the Constellation Brands Third Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode.

Following the prepared remarks, we will -- the call will be opened for your questions. Instructions will be given at that time.

I will now turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations. ahead. go Please

Patty Yahn-Urlaub

morning conference Good Newlands, to third Constellation's CEO; Thanks I'm and here XXXX CFO. our call. David Bill this quarter and Liz. Klein, welcome morning our with

financial most reminder, a GAAP other this news in reconciliations www.cbrands.com. are the release available measures As company's directly or website on discussed at otherwise between measure comparable any included our call non-GAAP on the

we may make Constellation's refer this SEC release filings impact to forward-looking factors, risk also statements Please and which on call. the for news

Before call quarters, to limit similar I per us Bill, would one time. we on help person, to turning that to over the call to end which will like prior to everyone our question ask

advance, in now and Thanks Bill. here's

Bill Newlands

everyone. the hope and is friends. every products family you, a the holidays The to enjoyed opportunity in year I your of exception. certainly me, and our Thank morning your Year Good Patty. awesome have you and this end no some and time for include of Happy with Constellation of reflection is celebrations to year New

only reflect not reminded has Constellation Since on strong by constellation on I'm journey certain financial a incredible a decade marked that an XXXX business Brands. XXXX year we're and performance the notable been I dynamic fiscal As but ending milestones.

XX income operating cash and the last value double-digit operating sales, of years, increased the we've significantly produced flow. Over in our stock growth and

best stock in Fast than timeframe. XXXX last This XXX on Staples XXX. stock we As a over forward of at XXXX XX, matter XX, than Constellation, years the increase Index made more of December S&P closed December fact, incredible Constellation's just of this the XX the to performing more price was the Consumer closing during of XXXX% $XX. almost

Constellation successfully these acquisition One of this enables many our way brands where last we years, brands while United through changing of opportunity. the drivers for with was built positioning decade. beer success It buy in the the to Grupo States ourselves almost game executed that half Modelo the biggest for transformational

deal company, double overall allowed free this for for margin, business profit has At providing our earnings us business contribution our and and market. cash powerhouse that flow stream, sales of while then, number the the Since flow and a made beer our sales, seller growth US avenues to to new cash of be in to time, growth. beer significantly profit as enhance and our significant our imported one results continues for Brewer the the diversify

for high innovation successful the explosive our Constellation marked leader position the Modelo solidified trends in XXXX initiatives. business. US by the These Calendar Corona XXth Extra, were Beer year volume growth growth and driven Especial's business of as and the consecutive end of beer our

number four posted double-digit of growth XXXX, than on million the a then in our In achieve to year US depleted million past almost there's In approximately XX solidifying most and to beer powerhouse more cases this double-digit of in Especial quarter decade brand of XX% single with states XXX recent its position went cases market. XXXX finishing while the depletion brand in come. the growth every the XX Modelo brand XX growth third as the at more and

Premier grew the in XXXX driven Extra. in brands X% than a on-premise in is From family Corona brand distribution, delivered grew renewed as brand and more million the perspective to X few cases selling channels, which gain the top in Corona the a and Premier strength of the Refresca IRI and of by within US double-digit to continued and And imports of leader innovations the for XX also in Corona Corona quarter. grow to Corona third remained to the growth to achieved a double-digit year segment. US as past Refresca quarterly US depletion especially decade. nearly as our depletion the our category launch which top a number nearly plans Extra of Corona Corona was share the Corona forget as not the the the continues million growth well XXXX one beer Seltzer beer during segment. XX% -- approximately excited of growth in XXX the this top from to finally, contributor XX let's our which XX further this strengthen spring, beer the of end the category states the quarter. during Pacifico growth high gainer position about in XX US US We're in of the help Hard the cases high-end beer will

XXX launch million largest-ever portfolio XX our -- this includes excuse marketing than intro. of brand the strategy than more more me, in for to single Our support investment

addition for We've plans the to about our excited of selling have season. take distributors and already from from retailers prospects incredibly positive into seltzer set shelf started portfolio the their feedback orders who are programing and have incorporated received already spring newest Corona

on matches total new of we've Corona strong we've of brand blackberry flavors, one refreshment course characteristics population with refreshment unbelievably XX drinkers As perfectly why cherry Corona's and seltzers most DNA. among Hispanic aged brand both brand Corona and will to be lime. decided seltzer carries lime, to and hard XX as the name introduced the equity discussed put our Corona four that's mango, loved tropical in seltzer number including and the

There's been within sourcing where the category. the trend debate alcohol of seltzers their and a lot growth seltzer are beverage total about

is shows research the spirits. share and from seltzer Our that taking beer, wine across you board

it FMBs is minimal with imported from seltzer the consumption of While coming press interaction with significant brands. amount of beer is and from this domestic premiums, primarily growth category sourced

who seltzers. overall from new entering drinkers their consumption those seltzer and interaction In seeing are we TVA addition, through consumers the space are increased with

impact business the month of annual that growth promotions. data IRI month to are out closed depletion Overall in this price As the Constellation's the and in The and features of normal specifically nature. short are high our single-digit decreases we the the trends. year-to-date California increases which market term trends seen With range of these briefly price frankly related four in our week's you've beer covering for December week recent increase

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brands not this our are We most the believe portfolio to pursuing all other we optimize already forward. these as actively categories divest path opportunities best to is going if in

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sustainable relentless to execute of coming a and strength innovation. categories continuously solid build we're the have these offset areas working high plan and of operational remainder a foundation to well year focus throughout We financial in growth, on the excellence, are and into consumer We decade. margin high and the brands that and

call like David? With of review turn to over the who our third my colleague, I'd David, the that results financial to will quarter.

David Klein

CFO our good the Garth operations been business developing finance the has and morning efforts people new as CFO My -- and has in you, well his premiumization throughout understanding professionally while leaving company's Constellation. truly On as and and hands the fulfilling. with years the to growth Constellation Bill. all and in-depth an significant thank at exciting, as It's Garth activities/. time company Good of XX contributor a personally working been pleasure with at everyone as you wonderful of

Canopy forward, miss Going to Constellation. relate Constellation's to continue cover certainly in who we as investors they on our side sales with investment interactions the my collaborate will key and initiatives I'll Growth. analysts

my growth. the I forward you I your ongoing support. years you with to ideas of continuing to in Over new valued many and I've and look for role interact Canopy feedback your thank suggestions at

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to transaction also signed Ballast the and revised Wine with brand closed the original recently a Spirits Nobilo separate We with Black deal Velvet an including and the divest Brewing Gallo, divest but related agreement to Wine agreement Point.

jump into financial we results, the Before

I'd year our guidance, range we've to EPS basis, on like and update increased an $X.XX. full diluted to provide comparable narrowed to $X.XX

which well range guidance beer reflects excludes and increased primarily as performance. This strong operating timing the Gallo as equity updated range Canopy earnings Our transactions reflects related the better

strongly We our is on equity non-cash. performance Canopy urge focus the business. impact investors as earnings core metric this of Underlying to

the fiscal assumes Ballast now by closed Wine XX. the the Point transaction and end guidance the Revised transactions FYXX of increased Our and Spirits

Nobilo XX. in first the expect fiscal the to close of We half transactions

Bill with As of generated from cash to divest relatively the the agreement close our remaining divestiture believe brands delay efforts the in incremental along to mentioned, timing Gallo. flow with value original from original in outlined the we transaction transaction

topline spirits and the over to realized the while an value operating of these growth mid of activities we the transformation produce we to time. business assumes wine believe This positioned be earn-out. margin After full completing migrating will XX% single-digit

shipment focus the of financial where in year net The came end let's and beer, I'll on volume shipment X% performance was sales on reversal nearly Starting our results. increased over comparable XXXX X%. previously and growth full QX detail minimal in lower Now of QX fiscal outlook in more basis year review generally with than anticipated.

in the timing of benefit reverse the fiscal expect remainder shipment from We to XX QX.

increase our for showed nearly in growth X%. import strength The growing volume continued portfolio

impact achieve including help from the this which X.X%. beer Especial growth in lost As pick Bill an In additional will up when total mentioned, depletion were QX, us high unfavorable by we Modelo of in performance driven QX, continued that day was selling we QX. mostly single-digit Ballast depletions up Point strong

benefits operating partially were expectations inventory reimbursement by to one-time cost basis The SG&A. increased build recovery XX.X%, COGS inventory driven Beer and margin and higher cost and the for ahead contract quarter. of FX a our and helped pricing the marketing XXX from outperform margins points by benefits were COGS our offset contractor an SAP implementation. S/XHANA largely contractor us build

the by schedule of excellent that pleased of phase SAP was in our our ahead with completed to S/XHANA am operations execution report and I implementation first Mexico for beer

year after milestones XX expectations. of for continue update below as initiative. Marketing milestone training quarter than important you sales designing Marketing net increased this implementation. for basis more XX%. to an S/XHANA planning, of important spend upcoming a to was SAP We'll is points on a of This and percent our the slightly

expect net We a percent XX to fiscal sales to marketing be X.X% in range. XX% of the as

now X%. within growth XX, X% to This pricing we Mexican fiscal X% expect X% sales includes net of of portfolio. For to our

of result shipment of plan timing a fiscal 'XX benefit. As the reversal

fiscal growth one volume full-year depletion to of volume shipment XX point land growth. expect We about ahead percentage

and year X% expect improvement XX margin in compared operating XX% also XX.X% prior an the the to to fiscal our to of full range which growth X% of is income XX.X%/. of to We be operating FYXX previous and guidance year

launch excited this as some move will up costs, earlier. we're we to our in mentioned marketing addition Bill the Corona plans seltzer significant As the hard production investment There of XX. in year beginning for be to ramp major innovation at we about toward next fiscal investment production

XX%. down were on declined and to wine that Moving spirits, sales net XX% shipments

primarily shipment QX benefit. declined timing X%, to communicated a results previously Depletions outperformed expectations due our

with shift distributor results replenishment by somewhat fourth the impacted were a quarter. retailer timing shifting Thanksgiving holiday third and Our to spirits in wine quarter and

week there to year was replenish. Last one full fully post-Thanksgiving

to lower and and addition sales forward. holiday, activities better be not some shift strategy incentives to by with we've Thanksgiving distributors impacted the for decided going quality transition to of pricing in to In with continue our order align the business repeat we will the activities that

percent and new cost continued driven more sales marketing as brands, operating higher power spirits were COGS higher investments as sales, SG&A basis Wine of Higher reflect margin higher the to mix XX the mostly and net points by freight benefits a The by than including SG&A offset decreased headwinds. net as COGS XX.X% percent support of a included of

in quarter. and now sales XX We only net fiscal and Product development income initiatives operating the may to decline expect and XX%. advertising wine Spirits' X% to

updated guidance transaction Our the close revised reflects discussed assumptions earlier.

As Transactions, fiscal we remain reduction to the cost stranded be now XX fiscal million timeframe. part Wine XX $XXX of plan, we the over to and -- which to committed Spirits over our expect realized

I In growth transformation strategy digit mid-single our as the confident increased we're working. mentioned brand Power I to activity and continues wine investments. our fiscal and benefit spirits Brand of remain Power the target, earlier. is to short due bit a running largely focus marketing 'XX that from performance depletion

mix see you to and However, power a sequential should IRI QX. in gaining expect driving depletion in in channels brands are benefits share improvement trends in

you operating slightly When year. mix versus at migrating of growth XXX our post year-to-date an in last mid-single while including targets, Fiscal margin of net track came to million, portfolio QX up digit our believe include we benefits expenses to is achieve on corporate XX%. this year-to-date longer-term divestitures sales

related corporate compensation incentive to which an We now ramp our enablement other and expect in million expenses S/XHANA activities. costs, insurance the in $XXX digital increase IT approximate for spend, higher year includes implementation full reflecting

end activities digital of fully decrease We expect enablement by fiscal the look our implemented. to our are once 'XX SG&A

QX expense realize is our primarily to can This new of benefits expense of the expense and basis increased to we Canopy platform. XXXX. reflects fiscal November interest the $XXX costs in approximate In When expected Growth interest interest Fiscal in comparable incremental related million. funding of additional redundant investment -- the XX%. eliminate now IT XX

primarily Effective excluding point excluding is came due impact tax in Canopy rate, full rate, benefits. last at XX.X% Our stock-based XX% equity our reflects primarily earnings year to We comparable effective QX now tax equity of increase compensation year. fiscal approximately lower rate guidance increase This basis. one versus earnings comparable our percentage Canopy versus expect lower the to stock-based XX the XX.X%

the forecasted. expense tax we miscellaneous than be single-digit and mid range. to tax benefits high for that higher expect to cash we like items our note rate I'd year full previously to in

flow free This first activity XX. as define operating Let's move provided months cash an net cash to we fiscal the generated impressive of towards free cash $X.X of increase. by CapEx. XX% flow for represents which We billion nine

expect guidance million CapEx the and reflects $XXX million. operating flow including now lower as year We Free spend to to investments of approximately Mexicali million Nava $XXX CapEx and the of of improvement breweries the operations original furnace Mexico full versus This includes cash million cash primarily $XXX XXX XXX flow million strong plant. our for fifth glass beer Obregon well glass our in expansion, at as CapEx.

of XX cash X.X X.X free We to fiscal to range in to to be X.X range expect in billion. the flow billion of operating billion X.X cash the be flow and

excluded discuss were QX results. let's noted sale we recognize to in we basis write-down several Last for of that Gallo. transaction impacts comparable the with loss to related assets expected on QX that held Now our a quarter, from

consideration with govern by $XXX to of when the Accounting largely contingent The driven price. the million contingent record associated consideration realizable. rules actual be the determined to million of $XXX our was it's write-downs election transaction revised

tax the $XXX assets recognized Switzerland. tax in also million resulting net in income of connection We deferred of reform tax remeasurement our from with benefit

recognized Moving recognized our to is we since million million. in value QX, in XXXX Canopy fair the November decrease of $XXX net pre-tax investment $XXX the investment. Canopy the total Canopy gain In initial

exercise in per consideration. price May expire and will $XX.XX represent and XXXX on X an As than million share less Canopy a warrants of reminder original with Constellation's have Canadian $XXX

does of to exercise the not expire these tranche the cash warrants. potential to of of company would each additional warrants expiration A and evaluate the will exercise make on of In Canopy plan XXXX, contributions I X November, these warrants immediately beyond addition, to prior

on comments allocation. some with capital Close

we Bill billion I mentioned of fiscal as to repurchases committed goal foremost, in shareholders that constellation $X.X the remains when related to QX XX XX-month to to to Canopy on we excludes range and non-cash over earnings. end at to pleased was our the closed leverage report equity returning timeframe. early committed We the dividends XX and investments, returned am of this in its share targeted fiscal ratio the First to X Canopy timeframe.

strong move Continued by company's flow share flexibility opportunistic capabilities provide into and we to XX repurchases and driven deleveraging, should generation fiscal as the cash increased the be XX.

As Canopy right I has including forward reflect believe tier to the I on in a strategy to Canopy I years remain produce in creation. my company come. time many for as for in CFO in about Constellation, prospects place my I'm significant role role new to Constellation growth. this creating top proud value value bullish look of Constellation's to performance shareholders the have during been time and

With to that, are take Bill I happy and your questions.

Operator

Suisse. Our [Operator Gajrawala question instructions] Credit the first of Kaumil with comes line from

Your line open. now is

Kaumil Gajrawala

be our What's question pretty to it XXXX. make on incredibly obviously like your this investment it's significantly be to are Congratulations it's and different thinking how an to going everybody. David and summer? spend of afternoon category really for building about up seems competitive seltzer going marketing good Hey, proposition category you calendar competitive given a that your

should are be we differently? levels keep where buyback about on a that it are your you. thinking separately, everything you they deleverage second is then to and the levels here incremental or from And to Thank happy manage to now those comments

Bill Newlands

seltzer of exceeds sure DNA we're part, about marketplace. the attached the we to very that lot product hard excited the a the lot that's half other Corona brand. a done in research that, product or just take because a obviously product in Corona meets refreshment players key the have of that make Sure, to have We I'll first of of testing

So going we And are usual as of quite bring to quality table. comfortable that to the with the we're the sheer product

Kaumil Gajrawala

bring business. The size communications do still consumer is is, the a of X upside last as always XX two the in It opportunity I and total believe roughly opportunity. there I critical -- of in lot to three of share believe going a around XXXX. will to be that thing department X And Marketing we take was brands. outstanding a million could there would expect forward we cases times that Seltzer say our we to significant

Bill Newlands

targeted Yeah range three buybacks, comment on our the is four to times.

would Our we but will as midpoint to the now be definitely opportunistic we're the be in we we're of at that move preference look the range back forward. that range now

Operator

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

line Your is now open.

Nik Modi

morning David, -- Yeah, congratulations , thanks, new good me your secondly on everyone. opportunity. let

concerned constellation, So I capital is obviously the Canopy tough years for allocation right value of really still, if question investors with can go Point allocation have lot a back around, been months to been about few and last have declines. capital Ballast decision with the

into you this how organization committed you as of give about can obviously already stuff that to year the sense of get buyback you of capital it deployment just just have about Philosophically of how kind kind and of being a go you're point from kind of you maybe CEO guys particular of two company? So us union, thinking a state outside people of learned in an think as from kind of Ballast the your perspective, what you've

Bill Newlands

Sure.

top think remain I than as anticipated. said, we pleased range, just as of things we committed think the have have the range the end pointed had as into one David out, I to we he our we we're gotten and of and into that getting always ourselves earlier

relentless Ballast on continue going with high share is you to have significant the will much a sure brands critical been. you are to are have you tremendous within and that of they out margin, point we and seen we invest We a see see those will focus as and of amount to franchisees where have wine end take we the like categories make and than business, existing rather core low our opportunities opportunity focused we where we where see to action consumer issues take problems, the or Point on the prepared our high-growth

two of examples that. are those And

the the on in to I be continue company our allow and play told, that so the leader now, this the story that shareholders. same beer I -- sits just and premiumization all growth from business what do someone focus we they'll our business the when will and that us will for tremendous which and able spirits XX to be to attention great our that to continue years Wine in a for of decade tell chair think both of is

Operator

Our next Cowen. line question comes with from of Vivian -- the

Your line now open. is

Unidentified Corporate Participant

My of to morning. part really I coverage It's good forward Canopy. look you. to with Hi, my congrats David of you, working

commentary you based So, is Bill on around insights on think offered. I the that just dislocation the wanted hard consumer driving follow your up seltzer you to

of You it's beer. under imported but broad-based for expecting are for kind you asking introduction of of perhaps much Corona think you expecting might offerings more guys specifically seltzer to proposition, fiscal given indexing in cannibalization how terms and that hard 'XX, Corona it's put the hard to How shift be your guidance dynamic that think not interaction you and are it seltzer and thank you. between core

Bill Newlands

first it. the this to appears potential all, introduction excites the that a lot to in And Well, think I us have about real is of Corona growth category seltzer continue that is strength. of

of creates probably those there's play going to sits today, category. I As in tremendous I to Xx think for us, moment Xx which we're a said it the where ago opportunity

expectation is Incremental mind of so the for all you I they be on single you XX% recall, would to this will also encourage biggest our our of call type But, on around in grower be we we which -- this year. Premier, to think was us. great profile similar is the in likely have launch exciting I we keep saw that this, might to Especial next is Modelo would think as a range opportunity as would be XX% is that a cannibalization

XX% on had to to is of absolutely it to be This a going this fire. a brand years significant remain continues recent that the for is brand It come. period most foundational growth. that's many, be years for a company This plus play grew and and and consecutive double-digit XX many

Operator

comes of Grundy question with next Kevin Our the line Jefferies. from

now line Your open. is

Kevin Grundy

so data Bill, saw you to pretty that the And pick on everyone. want Nielsen on morning to Despite we well. my congratulations good I some I Hey, extend sounded . up the slowing the guidance David, of as positive. beer wanted

organic pricing, I if math implies midpoint, is The do selling growth. if right, day. additional year-over-year is get you but you the an think as look I easier X.X% at to it attributed about sales comp my

about terms Can tweak -- you've X% portfolio as what in over expressed here the to year that anything that you? that you bit had at should fact concerning modestly with like out at a Corona the we seeing looks you business confidence the looking year. there longer-term bit bit, is little gives then base you're to looks given next Premier talk investors of And the that in a term maybe be it pause of cause it's some look deceleration. decelerated in light, all growth we for intermediate X% to the that this lower a Thank

Bill Newlands

renewed Extra Sure. quarter. in No, our positive be our around particularly should that in We growth very business and you expectations third think the returned about excited Corona business. the were I core

that you which trends. I to our I increases we a the not certainly on alluded trends gave as the the profile year-to-date ahead do depletion impact particularly back was longer-term price our that us in IRI growth in earlier, we expect that in high single-digit most As stated, overall State the saw to in talk, brief have recent is factor very data, December our California but of any of the range,

addition bullish. our the of Modelo And things So business. when we you and remain think like and seltzer very about very Pacifico

you're had going our we with we in will see do. to I would think range And delivery this business said for deliver continued that year. that against strong the we a

Operator

of Morgan Mohsenian Our line with Dara next Stanley. the comes from question

now is open. line Your

Dara Mohsenian

extend Also to guys. David. want morning to my congrats good Hey,

quick you on two the Just Bill, beer that depletion single-digit business. in mentioned clarifications the high December. growth

think give of day a trying I are sense type timing us can included of you in David, though, margins then so the that and you and the how extra that to you extra rate mentioned ex an contractor the day what much of was. benefit quarter, inventory get

question. more those the benefit if of And additional give are clarifications, you me

track You at depletion of the growth from beer over growth prior if obviously an record you comment amazing look fabulous track X%. kudos guys the pace decade of It's for the did XX% that to year-to-date and the years. do few record, on that but below volume X% last

or level, sequential step there of just this if I know this curious more issues more it's a volumes taking out start of slowdown as longer slowdown depletion were expected. at just high your over trend this driving close maturation originally move look and year that's to if year, a the if should a back, a you the you what you larger larger we is for just discrete of the of time slowdown perspective as not Thanks. guys But fiscal sort expect on in a sort gradual moderation case term. natural numbers on the

Bill Newlands

quarter to trends relative our prospects fourth quarter Look remain the we beer about So our single-digit range that fourth fully for going the depletion like for be presented expect the expect bullish trends extremely the much itself. high depletion long-range for December we our to are the in business

Dara Mohsenian

the significantly as as category of hard will overall admittedly gotten introduced [indiscernible] which are we compete has as end that's the seltzer very well outperforming very We category before high the product, significantly, and fast. big, well

as this our for going give provide are for will during with cost will very and year, think that call. fiscal renewed the we the I us reminder, excited fiscal new base about into obviously a opportunity we guidance So growth next

strongly only the but from we year excited certainly, not at our well. we're but this next So as year point refrain about very doing for time quarter will very that finishing and fourth in

Bill Newlands

if QX, the about all the And rewind did quarter. a several in gave these we in are Yeah us glass settlement that production you think contractor build I in you there benefit million that on a QX with the to know an think we -- year kind even in last last dollars few issue year S/XHANA production to each. year of had

to go they impacts quarter us. of against that sometimes call we our $X favor, $X these kind it each -- they in So every are aggregate million single and sometimes million get

you and we're million if But FY we're XX.X% look between we're XX at going XX.X% this our FYXX say 'XX XX.X total at year million. saying to at to in operating we're be margins

get which you consistent of end timing I'll I away and maybe let's time go all a in American. to range is for these best-in-class we the think up the our end point time margin far last by little the pretty year the business, in this out by North in

Operator

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

Your now line open. is

Amit Sharma

Hi, good morning everyone.

Bill Newlands

good Hi morning.

Amit Sharma

of it on you but confident Just recently. and the Bill Can we in still bit you're still talked one concerned digit. about beer. long-term talk saw -- the double-digit are outlook people high-single Modelo looks a particular about couple some about questions, that like on growing little detail

the talk you pipeline in perspective. Modelo about what Can a is from

you XX% look wine with as the you talk price and hear cost Can David continue that they momentum timeline still about the outlook stranded post then margin As to lower business. operating the this intact Thanks. of to of come good divestiture brands. out the

Bill Newlands

I'd say, this the remains times I company. this Sure, largest I've many and opportunity Modelo said for think single

David Klein

a profile expanded Hispanic of to for is with advertising great United activities many a Gallo audience strong consumer a States, you with a core tremendous. the base we the within with very, just tailwind you that the the give to have our run as have of consumer. and into in of but and broader the is Hispanic its general continue craft know, and know our to which around tailwind to growth the very as fair It had us this amount growth a In continues marketing if non-Hispanic time, grow beginning the will audience do market been

know So nothing we else be of to your as see we the we more which done And the to in our Modelo that has going different well introducing what have in truly products, outside for upside us. extremely around opportunities. business done Modelo so will have size about we remaining size innovate tremendous question you all

the we and going for think and is largest into well likely going us will continue product Modelo So we to growth not single be to a be decade, next brand forward. the

Amit Sharma

stranded of it's into that getting delay. a $XXX the Yeah, at it's of the almost included, topic story will stranded we're provide million specifics, quarter. a without a the be beginning one-year on we costs, next this on We, guidance when saying we of costs told year, bit

assume lot up clean at first to costs a stranded coming hit it our the P&L, of where we of being FY so You the COGS 'XX year 'XX quarter like hits 'XX, the in [indiscernible]. can costs to FY third that real those we can a take a will because through be out flow come seeing or rest look FY before have a in that,

Operator

line Barclays. the from Lieberman Lauren comes question next Our with of

Your line is open. now

Lauren Lieberman

morning. Great, good thanks,

some the spend you is bit can Corona little of there's about last at beer Right the took plan, plan. a of behind quarter. on on the extra Corona time, a put hoping was clearly, because I some had profitability money we'll a been same in the say marketing opportunity reaction bit light coming in came little a So to look bit spend talk increased marketing you beer

little a return Thanks. particularly is So had spend and can bit on if attractive give mix kind looking was particularly in that a what would you us the be why marketing color forward, interesting. some just lighter plans of

David Klein

of on, I'll Sure, issue. is, the of really comment it it's kind timing a and timing and on spend

range year XX% finish the we to that the time, that X.X% sales. expect At We net we the same expect in will said, of

Lauren Lieberman

QX this we an versus see That year. spend year will our in last uptick marketing QX in

that but of with it to around some Some of investment that costs do outlined the basically to seltzer incremental our marketing core brands, production having with Bill do having behind campaign also earlier.

to range. us, we focused a for just really think are still I marketing a X.X% timing on as XX% So for of is it function

Operator

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

open. Your now line is

Robert Ottenstein

follow couple A up thank clarifications. of you of just much. very Great, kind

sense by versus next it's can sets Corona retailers, us well white where be give shelf received coming year claw. other a out you being going some the the you then give First, and on Point second, it us see Ballast price made seltzer a been up have positioned mix shelf of what that you about without comments of looks would seltzer to the on us on Can that was some is to Corona that following of how versus the X.X%. sense beer comments you

And been I you mean, trends at been increasing look share. Right. the claw unbelievable. then if they've they're White actually they've

a XX% the competitors. seltzer white claw segment the lot that confidence up new gives there share you is a is segment to like latest for hard of from think and XX. you. I Thank this opposed actually as room that is something What a

David Klein

Sure.

whether it on the about expect all Seltzer box. our franchise it's in space is something in we is retailers different, likelihood to consumer going talk let's core sets the beer cold and So it views as from take different. Seltzer. something The to or the viewing see where not the shelf

there cannibalizing space. be a differentiation just shelf of we So think versus existing location distinct product will

your so a far, -- way continue. answer category to whether is it's we will been believe This that or this question the regarding the brand. That's a

we've answer think solved that I ourselves with for Research.

said Our whole consumer brand. idea DNA refreshment is I which Corona The and strength whole hard of the a interested core the that of seltzer because In earlier, what in Corona Corona very is refreshment seltzer. part around consumer in of the

Bill Newlands

experience this. is Beach The perfect for

forward increasing the category we're the brand of generally with together to overall Corona bullish these and the that the it. speaks that As overall against for we category, think quite -- total said earlier, well of seltzers consumer investment has make strength it, we're going beverage name consumption the which I alcoholic their seltzer the been on of going

Robert Ottenstein

basis -- we if that it imports, And Robert it be, but more additional might to on looking to much the points, -- at not XX . be were might price XX mix just question, not

Operator

from of Deutsche comes Bank. the next with question Our line Steve Powers

Your line is now open.

Steve Powers

me maybe from another Thanks at from outlook and David to the coming congratulations direction. beer

said. pretty into finished or less call last more would Chicago, 'XX you beer XX.X the flattish, where are year, the at guys Just as it beer and with coming trend event back you coming in you line margins calendar in adamant

strength. upside exceeded ultimately is could you thinking beer margins of that -- I a potential prior there, as as or row, raising But any I guess where does the to now aspire expectations well. seem the step mean to have in quarters I that recent quarters full-year without your benefits some drag arguably three XQ recent beer there three from the change margins in outlook to that a you could as back we're have go-forward Ballast. your embedded 'XX to do and especially XQ of is reverse, upside Acknowledging attribute outlook structural fiscal guess the into would

Just to you timing mentioned some earlier, David. had that's of those that

Bill Newlands

would with start we as can add David, that, I'll like. So

that During discussion.

One this is structure, to as either things certain also long-term go but view there it's take way are of it, relative go way. quite what favorable about better around to recognize we the are has realistic cost margin FX to those just sustainable be will some years year is guidance better, were would our we're certainly one we to our proposition been things our that clear where things and of those happy things simply can

As I it said, this to we continue work. and year in has gone our favor,

footprint year it sure you cost, ounce it our and expect to this to. want but our has. opportunity David, make every on are we you As extracting our, we're quite that as relates on operational on would pleased of to way

David Klein

-- order I Steve, new say please. operations produce that caution of some people consistent that a convinced we basis. are, would the we we on do best on I'm -- planet. to have the the In A Yeah, results

Steve Powers

of SG&A been I the be we spend towards we're is of in We this -- percent are launch high think marketing end the about that clear standpoint. from that know going driving as that year Is to we've seltzer when a our a range.

out my drag come as I going gross as be on said know on to We script Seltzers. also the that we of some gate there margins in are

a drag I However, don't we've over we them be drag and a going over be so Right, time you're to also to don't to think expect said believe have time. Seltzers that we row. and years in see I'm said the pretty as percent with puts outlined, as in, consistency I three takes actually range our pleased Bill a margins XX.X% but for of business in

Bill Newlands

best is that would like class. add just David's to comments structure beer our I much of margin

would versus think also critical get structure class our margin we as seltzer that best-in I to competition. you be mass, the will expect

Operator

of the from Teixeira question with line next comes JPMorgan. Andrea Our

is line now Your open.

Andrea Teixeira

you your David. your CFO on morning, and also on for good Constellation. Hi, promotion thank a Congratulations work as

marketing of Seltzer quarter -- the quarter first also fiscal in early early a on in March. XXXX understand already it part comment the the is early and fourth the increased should I in in on question my -- fiscal investment budget year about March, because is So follow-up we increase launch

or typical innovation will And relative if launches happens So I clarification, bit the for that little around Shifting a the in spirits. [indiscernible]. wine typical to and a gears

to XX% So far down it's the quarter date. so profit spirits it's year wine and fourth implied down guidance

fourth improved you is So to the full the quarter. in an that X have XX, which year down implies performance

you. you on if can So as that well? Thank elaborate

Bill Newlands

so on spend. Yeah. Yes, marketing

get QX. spend We on a to can that's -- that range. be you that X.X% back And basis up expect year-over-year our to that XX% calculate in kind will into of

we first that's the activity will half the Well, most this little on that weighted think of said, the production certainly that been be shelf. marketing want be the a to has and I we're the a quarter then year. As and bit at to -- time. point in product just production that first driving We'll getting seltzer make consumer sure likely to costs we're

Operator

MKM Our next Bill with question comes from Partners. of the Kirk line

Your line is now open.

Bill Kirk

obviously bring can with so you, you've Canopy it technology the as Acreage in a launch IP I understand cannabis question the Canopy Canada, technology I up have beverage on including beverage on worked US. and that quick to Thank

US want you you products the in would making start with is, developed question to my guess Canopy. I acreage So the that

Bill Newlands

it's not decision. that, the think I so our thing best Yeah,

in is Canadian ecosystem, Canopy in we so, Constellation in products that's think the run if acreages that are the and some Let benefit but Acreage the consumer those team will, comfortable has me do to the all of to a to cannabis acreage outstanding our the just the sure the in helpful bring marketplace. like be you benefit US our develop products of market meeting that's for a throughout expectations to if about that that around they’re decision, clear home can extent use that's a to been we making

Operator

line of with King comes question Our Sean from next UBS. the

Your line is now open.

Sean King

national you small how called interact terms do on I Refresca shelf. Seltzer the guess you of with track I the guess Hi, still, thanks, but expect to out channels. the rollout Where and growth the as do Refresca you strategy in driver, in it's stand it's pretty

Bill Newlands

we're Yes, we in get very admittedly, to different has there a interaction little and Refresca We in it what between earlier, to between the businesses. FMB consumer shelf invest our with to pleased some our it don't behind going Refresca, said to interaction and make sure the I And as outperformed to continues continue it the expect they were. expectations we're Seltzer our our and although is serve way needs consumer. Seltzer think grow,

to the there seeing continued out. think we we're for as of franchise acceleration it as But well room is the, looking as as well products Seltzer the -- Hard of those market comes both when Refresca both in forward and

Operator

Our line comes Bill the next from Chappell with of question SunTrust.

Your line open. is now

Bill Chappell

kind you terms that much. to And of what about future Andreas quick In Any and marketing so guidance kind quarters following this David, peso the the on beer of versus what you two congratulations a or -- then also in Thank margins ones. impacted talked dollar of spend quarter come. question more is in

Bill Newlands

what it more front-end Is this, more the similar, months first when saw forward or of the pulling rollout to is throughout kind very marketing of we XX at quarter in loaded terms spending the XXXX of look Premier with year? ago balanced of we

David Klein

FX on so we in team. get FX Yes, and IR the in again, volatility some

you which in trying nice little couple last especially given the Premier. about bumps the I on we think tailwind USD the think us in a gives about then think job of I impact like peso that lot so that’s the volatility the -- Right, can between XX years. of over it And of peso margins. lock a that think quarter was the to in and points basis -- a yeah,

like spread of the the the year of So launch. Premier should kind look quarters the throughout just

Operator

Grandet Our the next of with line from Guggenheim. Laurent question comes

line is Your now open.

Laurent Grandet

Familiar and regarding Yes, the I'd good Premier Nielsen like David, last data question the at on to a few morning, specifically over Bill. when have And payouts. Corona looking Familiar,

in deliberate and you seeing space not are Familiar it grow. is keep more space accelerated -- to the are may it you Corona as to incurring We pretty for an provide mentioning seems, that and fit it refreshment Modelo decline, choice so

growth plateauing. of the like Corona. And to It then it's Premier on Corona size is seems getting

is sense or So any revamp Premier Thank reaccelerate there of performance just can brand you current satisfied that the you. the one. growth you so with Corona are and

Bill Newlands

Hispanic in Familiar. is do particularly to the community, which where continues core it targeted. was relative Familiar So to very well, originally

specific be think specific So that in very an regional to we to the opportunities. with is very consumer important Familiar and part, continue going particularly demographics Hispanic geographic

about The Light Premier, our Premier cannibalization to nicely some has up do degree. and has Premier you to has as of been impacting that obviously as excited to to some would very for that But opens new Premier well a looking who impact. it, presents. that we're consumers Relative are expect franchise low-carb there also been bunch positioning occurred more continues

this chance introductions So more and the Hard are to gives and more before, to dollars Premier, continue consumers Corona with I always we franchise. People on overall to in and leverage again, Hispanic it coming -- fiscal forward. Premier, said for and believe going It XX franchise. XX is one trusted number to bullish is coming one, the number as -- this which us in when more obviously to that and brand Refresca, Seltzer pleased the we new goes invest going non-Hispanic we're year. that remain most both like more right against to very continue consumers spend And and back franchise against future the

on decade, fact one we shows for that real So the overall the franchise course the think franchise the brand growth very few brand. was over of franchises longevity I that Corona of the remain bullish and the last

Operator

back to further in no for call remarks. turn questions Newlands I'm Bill to queue the this at showing closing like would I time,

Bill Newlands

well get I deserved. very happy joining remiss but today. Thank didn't the call to be We're you our say this And much. I David on side, miss I'd received to our everyone thanks Well, be certainly that all for XX%. congratulations going you we'll you just are guess if

testament current are I'd a our over made this to for the what closing, management XX team, results our initiatives our by a Before year powerful dynamic the priorities. been our strong reiterate decade to years Constellation efforts past like strategic and through

quarter a as therefore momentum fourth this just well excited positioning continue company sustained a are the next long-term into are this finish as and optimistic we years as for fiscal to the year. success strong XX and the that will We

a our As next call. during quarterly reminder,

providing said earlier, for be I the guidance fiscal upcoming As we will year.

for everyone again thanks So everyone. New call. and decade happy all joining prosperous wish the Year and new thanks safe I you a

Operator

for conference concludes this Thank gentlemen, you call. and participating. Ladies today's

now may You disconnect.

Constellation Brands (STZ) 8 Jan 202020 Q3 Earnings call transcript