STZ - Earnings call transcript Q1 2022 | Constellation Brands, Inc.

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Operator

Welcome to the Constellation Brands Q1 Fiscal Year 2022 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, instructions will be given at that time. I will now turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations. Please go ahead.

Patty Yahn-Urlaub

[ph]. Jiji Thanks, welcome and first-quarter 'XX fiscal Good to call. conference morning, Constellation's Newlands, morning and this here our with I'm CFO. Bill CEO; our Garth Hankinson,

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

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

William Newlands

welcome the to QX, morning distributors of first-quarter we Thank our call. up 'XX. with Good in and left delivered QX Picking strong off you, team help Patty. to Brands' everyone performance right in where another of our fiscal retailers Constellation and our conference

and our pantry overlap partners another brand off-premise in continued us which pandemic to goals. led year, we of year in the strong of trade performance to loading trends While channels investments growth, aggressive our of continued efforts long-term focus record last building, team our on with and tracked phase deliver the position the consistent

in our beer, portfolio the years drive growth some points spirits like ahead. reasons while in our I the to from wine, are potential future long-term. of highlights detail gain a for of industry-leading, core and of competitive and Number of total shareholder ability keep across that our strengths, to to growth and to you we'd As in runway believe returns significant constitute key differentiation, to our offering Garth factors momentum the the QX, continues and there continue brands over mind several our strong one, business

efforts it global business inch as our generation is our strong three, at to evident to shipments, making off and business, more two, and decision due positioning making, delivering continue of share the repurchases Number more our in in we're to of an comes of year. share our demand. of along consumers in as and innovation legalization months operating our to strides sales, are than investment start, which apparent keeping emerge ongoing us with continued cannabis double-digit emerging during fruition and depletions, this we're consumer nowhere Canopy to strengthen market beer in to and relentless exceptional Canopy the in growth net leader buyback of US. than this Growth, the is more Nowhere be we the team capturing number this million our to resume income first we the the And categories. cash capabilities the performance about is four a activity in ensure growth flow with enable Number fair strong our $XXX forefront four, significant continued than to fiscal operating closer

share strong accelerated also program is year. of million addition, XX% our incremental form will of billion be repurchases. morning we activity $X We This driving this shareholder an quarter in increase remainder EPS repurchase in guidance execute this throughout our the goal shares. which In will we to are value believe of achieving announced additional $XXX repurchase to an for and we way demonstrates that an the to the second of our maximize our on share this commitment about

our in performance a quarter. transition more to of Let's detailed discussion the

properties driven digital, a soccer, all quarter. brand the Cinco posting Corona the start, XX% Constellation channels, sales quarter. Summer well social, as beer to de cylinders almost as driven is the to activations, Memorial channels, of on depletion of with marketing an a Mayo business and delivering operating and off in holidays as exceptional letting IRI to for name on-premise strong to doubled gains during by in led of growth in of entire led no brand which position the beer growth share media to the our now and in e-commerce market and growth, double-digit of UFC, just our fiscal high dollar beer income of high-profile for market. remains XX% XX% net 'XX. execution Modelo retail, in the approximately end volume, Gold solidified and accelerated fire return family two gainer It growth mentioned, was Especial few. Games of Excellent and brand Day Especial represent significant in increase business became Olympic execution impactful continues up the sales US the As which one in depletion by the as beer driver Modelo ongoing signs execution number category nearly in since and the number way growth its growth also the leading US like high-end. one as Cup a a share number the a

dominated to are Hard early already Variety month, During our the response has Pack it's similar initial cycle, Variety we Meanwhile, velocity consumer than we which size positioning position. while #X of launch market in appears brands. few and by incrementality light a and Ultimately, brands been Hard #X the the in portfolio. to very Pack same category Seltzer favorable. in we will the believe held quarter, and be Variety we #X, Variety those Pack and the beer sales launched since run, Hard Hard the Seltzer continues half of to shelf #X Corona Hard long in entire is launch family one remains four Variety gain launched Seltzer the the category of more have space to Pack Corona Seltzer as dollar this be #X Corona and has Pack distribution number And large has Limonada. levels the Seltzer Earlier about its to the

to capabilities the fiscal fiscal even hectoliters to year flexibility competitive. and the our giving this in the and We as of in to to online the We it's new Z on Pacifico have the important X Seltzer ambition year, us next we growth for and capacity more Seltzer expand plans expect this focus part strong space. bring number top-three of drive our continue for platforms new than continued to within segment remains momentum, four by driven share flavors, category with this packages, success of Overall, than Gen our posting another ABA an million quarter new double it's high-end be plan to and ultimately player XX% believe a space. the depletion with important consumers. more gainer

behavior the last As quarter. due including sizes Constellation's of are on-premise XX% was essentially loading depletions year's non-tracked first versus last when muted the impacting almost levels consumer grew pantry especially and chains, takeaway channels, of the to Conversely, in the certain availability some were the which during expected, XXX% growth, demand the closed liquor trends consumer in year in quarter, channels robust sizable pandemic. we packet the grew lapping more and off-premise for geographies. These which robust certain start this Nielsen the and at of IRI experienced channel

to summer our working with shelf consumers can partners third of the on we some brands throughout find up beginning plan continue to ensure and to this in our are distributor impact the We make quarter.

out-of-stock to during As last due US down the stocks we're month. challenges which restrictions. COVID-XX for beginning marketplace Therefore, beginning year, improving had June we're through ever, to production IRI slow second led our trends. summer see in to the runs the Mexico remains a in through of short-term significantly as than of out portfolio to August, of the facing, April progress is issues our we'll Despite lap reminder, and of start to extremely we business outlook supply our momentum the beer This bullish. year quarter, in the remainder stronger already our and these

and beer the to outpacing Our IRI that continues total by view Constellation's outpace significantly US industry. reinforced four-week is show is the recent business high-end trends beer

Now, moving spirits. wine to on and

margin craft innovation our the and additional we Our robust of fronts, higher a number fine out of operation advancing business to actions, pricing a executing traction, transformation during on disciplined costs DTC implementing our growth, made spirits also higher quarter and while strategy, furthering other continues pipeline, this first progress building taking efficiency including and to a capabilities, improvements. e-commerce wine and and stranded digital cost gain

progress the and wine made on-premise fine spirits of business, with evolution in During to quarter, bars consumers as our channel. returned the we especially and restaurants the craft

put and lineup We've strong to team during Blend, for Private top enhanced wine and innovations build Robert of High end. a marketing Blanc capabilities been integrating The Impactful Mondavi includes capabilities, which Robert XXX% to Meiomi US higher a The in investing craft introduction to quarter Mondavi the West. towards meaningfully in e-commerce among the new millions spirits was by wine of and And we Our The our this which innovations Red Cabernet shop, the expect the Sauvignon consumers pipeline growth were across investing And also the a Cabernet we Sauvignon, our our and and of the Prisoner's Unshackled Wine teams wine the composed fine varietals. channels accounts. to Unshackled segment innovation and IRI force XXX, Kim selling to resources, high Crawford Woodbridge during were our Sauvignon for wine year, expertise three-tier Chardonnay Prisoner space performance where building the Prisoner Saldo, business the planned expanding have and quarter. inflect Winery, Company, Illuminate, of new and closer XX the sales world-class quarter, our also begin driven a primarily of and focus in end seltzers, by spirits driving plus remainder including dollars Selection

to at the business is in beginning is spirits. e-commerce versus the impressive business experienced the still across that the year compared to first spring the While spring our times of saw of three-tier portion XXXX it X tremendous was pandemic, beer, our of DTC last last of growing growth acceleration XX% cycling And and X quarter. wine, e-commerce the

that pure-play our and Wine.com. Omnichannel and and Drizly terms. retailers We existing with consumers own Amazon, whenever can Instacart emerging Gopuff, their and like like so marketplaces Walmart, and like wherever to third-party And shop Albertsons. on continued retailers partnerships Kroger, forge

Sapere consumers, sectors Aude Californian market. has taken brands over residual an Black, fine approach consumer-first as a And Latinx, du that uniquely both Sapere to with we refreshing expand to and La Rose and that bubbles, Fete entrepreneurial low of to Constellation's identity were growth businesses, addition, Aude with isolated aligned full these building time, invest and of forward differentiated part quarter growing Rose significant and realize working in sparkling impacted of La approach investments premiumization & distinctive, wine made brands At strategy and to years Wine, high-end by has markets a brand We access our factors. small Fete our opportunities recently a with for minority-owned of $XXX is taken commitment Wine In clean. to simple brands Sparkling results and key brand million alcohol and XX founders a Rose and with authentic to present build the our dynamic multicultural in appeals convergence look the help du consumers. to and same content, these sugars, their no to the their Spirits potential. a

like brands regions so like are US and in and transport Kim interruptions logistics the supply delays but shipping their international issues, our Ruffino, experiencing chain First, primarily other respective global many in are sold including Crawford products. produced imported which

in portfolio. became has transition US the issues markets Southern to route expect Spirits our the with and transition effective second X, resolved which brand be certain quarter. & start-up distribution Wine some responsibilities XX% experienced we've Wine of to to April we Glazer's now market across associated issues Spirits, transition Second, & in our This

issues of challenges we depletion to for for transitional prolonged larger Lastly, to our confident X% in caused normal we challenges encountered which some of the our they these a some issue. higher-end than like the for don't this levels drive many key SAP, industry-leading a see few of to inventory goal ability which over during brands a supply cut fiscal portfolio profitability are quarter. Despite lower And seeing of achieving growth these our temporary we implementations have and organic trend the we Ruffino, continue ERP as growth. drove and accelerate X% with growth in system retail brands challenges, the year. Kim and are to targeted sales while Collectively, negative

US fiscal ability remain occasions, prior work Canopy session about the Canopy Canopy's on distribution profitability demand. Moving & Wine to achieve Valentine's year. to Quattro high signed Growth; a including to and Canopy and legalization Glazer's holidays companies. to was continue additional agreement closely year, of be will in with seven Mother's Stewart Canopy into market and for and product Spirits consumer to Canopy's to sold create synergies together route for recently top-selling to launched about optimistic and Martha Growth Canopy's the We strategy growth the states which congressional federal Southern during to US continue develop are as value US. lineup, Constellation beverage for this between prospects their extending Constellation CBD added portfolio Day the CBD gifts seen to for states out end as their Day by well has with prospects which be will due across the US their later early this both success bullish

performance close, of to excellent thank a brands to we are of performance. of momentum to of first I across minute As quarter to all well-positioned to for deliver Thanks business Constellation goals. retailers and and consistent want long-term distributors portfolio strong our team strong our an and spirits take our I core members wine, continues you, another our and with beer, gain year

and market the will consumer away and to Our continues beer share strong. depletion delivering a accelerating growth extremely business remains US be market driver top within trends demand gains as beer and take

continue overall US the to brands Wine outpace market. & Spirits higher-end Our

continue to we're growth our share in We emerging capturing fair of categories. capabilities innovation ensure to our strengthen

our $X cash will like EPS call billion our our would to in for significant financial And Our in fiscal drove to and strong review guidance over that, year. turn performance shareholders with continued commitment 'XX to to the share the strong quarter. the I to us increase allowed who operating flow an generation results and in with return by make repurchases line Garth, Garth?

Garth Hankinson

And you, everyone. Thank hello, Bill.

Our fiscal flow results and by start segment demonstrated generation. XXXX great operating is off a to strong our cash

As double-digit income growth. top-line, Bill achieved and highlighted, our business volume, depletion operating Beer

goal nicely billion industry-leading Spirits XXXX. flow our from share higher-end brands, our activity, and cash enabled reaffirming returning commitment & Wine its business us our growth and portfolio share to to execute accelerated of shareholders positioned profitability buyback generation through Our is and resume of fiscal $X to drive through robust our to dividends repurchases

X.X Bill outlined, shares million million. repurchased As June, for common through $XXX of stock we've

or In in incremental no expected into than of of we constitutes addition, release. this note referenced of to ASR morning we million this completed announced to share million that XXXX. ASR that Please agreement October $XXX entered $XXX agreement repurchase which is an accelerated incremental morning's shares be share repurchase earnings purchase the later

driven earnings to average the agreement the by June the our share EPS full the well basis diluted Canopy share a year-to-date outstanding, excludes As reflects we've increased repurchases. range in as activity year -- shares or result, in $X as approximately equity of of to range billion $XX comparable be ASR weighted decrease buyback diluted impact This $XX.XX. the and year

million As approximately forecasting outstanding we fiscal billion of such, share repurchase back outlined. during We $X our the repurchases weighted shares the are shares in of fiscal of for plan year previously diluted excess average of to the XXXX. additional $XXX half

these such, have expected excluded know not and our been guidance from assumptions. the share do timing cadence, as we and However, repurchases

update quarterly continue the year. we when to will We our shares accordingly throughout fiscal earnings report outstanding

On-premise growth basis XX% with focus XX% miss impacted supply in and a our increased on financial some shipment as of Now, driven by volume increase days despite for and and last shipping strong events overlapping off-premise for year. net XX% by the tracked XXXX XXXX severe Beer, fiscal results. loading by in of doubled in the depletions Depletion the non-tracked accounted quarter, driven Mexico, favorable growth The to during nearly detail, continued of which as over the both year's accelerated return year-end sales generally quarter behavior, was fiscal where pandemic-related 'XX. more of review result demand fiscal fiscal shortages since of total volume and performance I'll Starting channel. accelerated trends channels, nearly and let's Northern achieved pantry XX% QX beer our comparable well the quarter Texas first on-premise and volume in growth weather impacting early as the peak beer pricing. net sales from in

As accounted volume our QX and a depletion X% COVID-XX. on-premise only of reminder, for depletion result accounted our due pre-COVID the approximately volume XX% in XXXX fiscal of shutdowns as to a of on-premise for

driven XX% beer adjusting demand and for lower continued end volume flat during quarter, in depletion the challenges Lastly, and are business robust quarter, quarter, inventory volume selling year-over-year. by the supply selling volume in weather shipment than severe day QX. the days winter depletion nearly generated on to in one the distributor of muted the depletion growth, exceeded early shipment QX to Due first volume when at hand extra due in consumer resulting normal

fully and our remain assure selling we me summer season. our will the second peak breweries, Let you, producing throughout products out inventories quarter as that are we of however, tight shipping enter

the more levels we half fiscal second return year. of inventory levels As during a result, expect to distributor the to normal

offset margins; to costs operational XXX Mexico spend and was cost labor by the new as marketing. dates and costs, the increased logistics capabilities by by increase logistics conservative offset increase currency to year partially to was basis and and Brewary. Benefits were headcount bring a primarily our due prior driven transition increased net operating incremental Moving sales, X inflation margin SG&A beer points costs co-packing unfavorable our versus SKUs, obsolescence additional increased offset from The to initial These absorption driven of a began depreciate Obregon. to of XX.X%. incremental to favorable portion percent of at largely on online minimal in to favorable hectoliters partially fiscal operational partially reduced the beer foreign a of XXXX in in and X pricing, expect fixed on cadence were to expense brewery fiscal by production spending in the from of resulting The half expiration Nava as as Depreciation late cost primarily related up points increased due at towards of basis net safety QX. of more prior ramp the first percent a heavily to our to hectoliters impact we overlap had have million during as COVID-XX measures. QX year. XX depreciation to the sales quarter increased first in Marketing weighted but returned we by million year typical versus Obregon the X.X% headwinds the which quarter is during expense

reminder, the and/or event muted the COVID-XX-related sponsorship a year from sporting postponements. As and of prior half first marketing resulting in cancellations spend was significantly

last site communicated will of the activities quarter, be future As unable this to for given Mexicali, current in use. repurpose we state

As approximately results. the excluded such, $XXX an was impairment quarter, million from recorded for our which of was basis comparable

range. For and we our X% fiscal of to Mexican XX% points our which to operating target product includes of low X%. to implies XX% growth This full year operating portfolio the sales X% land within margin pricing income to mid-point continue to XXXX, of net X of stated X in X% to to growth

to savings by more to As our previously for gross agenda discussed, margins to following be the than fiscal our offset year negatively cost price be the as expected impacted and from benefits we headwinds. are continue expect

and brewery the relating completed that year. at costs expense the First, earlier other step Obregon expansion fiscal in incremental up to million a hectoliters X in significant was depreciation

mix we Seltzer And and across as cost headwinds ABA inflationary substantial our components. Hard Second, portfolios. expand lastly, negative numerous

X during significant year. depreciating will it earlier, see balance a at second quarter and the the incremental headwinds As the impact which be hectoliters to to will timing as million mentioned for the margin Obregon, we relates an from of begin cadence, fiscal

cost to benefits due we this hedging program, experience our Additionally, commodity from during the expected pressures did not quarter. inflationary

fiscal the half ramp inflation current as expect of off. our second during headwinds year we However, significant to hedges up roll

inflationary duration In of uncertain are more depth year and addition, we the the as unfolds. believe pressures becoming

XX% of net XXXX is with range marketing we which a X.X% the be for year Lastly, fiscal sales expect XXXX to in sales. of as full fiscal percent to X% spend line in continue of to net

selling support and performance fiscal to expect significantly QX continue season. the of invest initiatives during to generating throughout summer key XXXX strategic strong marketplace We

range 'XX As such, is as sales XQ came marketing QX to net of expected in fiscal XX% XX% of X.X%. percent be a to versus which the in

Moving fiscal net XX%. to XXXX on volumes Wine QX Spirits; sales shipment & XX% down declined

net growth Excluding by sales smoke-tainted are declined price the while favorable depletion and the to to was XX% point impact driven and relates of volume Starting organic increased X%. depletion well and dynamics of out X%, volume bulk and shipment impacted the sales as it organic as organic approximately trends and Wine the for mix, net volume & wine Spirits by organic quarter. net shipment as XX% several shipment sales, following. organic of with growth X% There divestitures, sales respectively volume;

First, organic for smoke-tainted net accounted points the approximately in bulk growth sales of year-over-year sales wine the X quarter.

XXXX XXXX was the as Glazer's a demand Second, from quarter loading, an delay QX we they depletions volume by distributors volume Glazer's. consumer to to QX fiscal order easy ample during from Conversely, pantry fiscal Southern canceled in inventory QX Constellation under perspective, as to of fulfill unable to the excessive Southern XXXX. fiscal shipped shipment we were over inventory shipment distributor driven we compared result shipped had there in ensure creating as to in that transitioned a transitioning in organic

which Moving volume by impacted were the trends; depletion X%, approximately following. down to

we loading to year's First, pandemic-related pantry challenging the experiencing are overlap consumer a last behavior.

result early transition, of impacted we the in experienced process quarter. challenges the SAP that shipping Second, the a as

and out stocks depletions larger the shipments we able QX brands. our negatively key to created of the during some of of While for the situation were rectify throughout quarter, timing impacted

created interruptions out imported Kim shipping Crawford Italy Ruffino are transport which Lastly, logistics chain issues, of certain respectively. have supply including areas in stocks and New global and delays from for and Zealand also

inventory we we in mentioned, these are believe retailer and challenges and refill to QX. Bill improve, to continue expect temporary As

margins; as and XX.X% Spirits COVID basis a mixed as margin bulk & Moving the significant to QX Wine in decreased price sales in of were and increased by on a marketing in marketing that more wine operating smaller Spirits by smoke-tainted resulting wine impacting dilutive benefits to post divestitures we're favorable offset margin driven points net than SG&A & XXX have margins. the and -- sales. fiscal divestitures marketing SG&A SG&A due and lower XXXX spend and and mind deleveraging percent Keep lapping operating to business Wine

For full XX% operating respectively. sales continues Spirits expansion fiscal on a XXXX, margin year & on year to basis, decline to income organic XX% expect prior margin an to flattish the operating basis. approximate net and business which implies Wine and is which significant XX% to to to XX% reported XX% shows This

Wine divestitures range. & Excluding the is to expected the X% of grow X% to impact sales in organic the net Spirits

a Furthermore, that spend will event during lap keep QX and in fiscal continue planned canceled mind to Lastly, suspended we from sponsorship SG&A Wine expect to in reduced of marketing XXXX. or divestitures. deleveraging the our Spirits we as continue please many QX were significantly investments result as & marketing media and

such, expect and drag SG&A be to in continue to XXXX. QX significant margins a marketing operating to As we fiscal

proceed with by benefits, compensation $XX expenses QX million, was increase QX by of The the currency and approximately higher X% offset XXXX. versus partially in fiscal rest up and Now, services driven consulting favorable impact. primarily foreign P&L. came corporate let's the

quarter earnings. the decrease full ended times, $XX expenses to due lower to average our we as net We continue continue year Canopy borrowings million to for decreased million. to approximately approximately quarter expense XX% corporate to excluding equity leverage interest X.XX at the Comparable primarily and ratio expect $XXX basis

debt previous assumed cash Our repurchases. used share pay be free would guidance flow versus down to

half. of discussed repurchases $X now earlier, approximately share guidance the reflects first However, as billion updated through

now increase $XXX and to As in million is of the be such, to fiscal $XXX range [ph] interest expected expense million.

foreign Our year, came our equity higher effective versus comparable at tax XX.X% earnings, excluding driven last primarily in businesses. XX.X% effective tax rates by rate, basis Canopy on

QX We 'XX tax excluding earnings approximate expect rate, equity XX%. our impact Canopy to fiscal comparable

XX% compensation the of are year. year as benefits approximate half the to However, stock-based weighted we continue towards to expect more expected the full second fiscal

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

of strong significant spend. increase included XX% of primarily For as QX, have last at fiscal the reflecting million operating $XX spending generated cash an represents our and plan million, the cash This which we driven flow year. totaled prior or $XXX flow XX% free expansion lower beer due CapEx year approximately timing, year CapEx. $XXX million Mexico CapEx balance facilities. is Lower primarily of CapEx, by to for initiatives spend we versus

expect our such, guidance XXXX billion we Mexico CapEx year operation of million continue unchanged. to remains beer $XXX approximately expansions which Furthermore, As $X includes full for target billion, $X.X fiscal and free cash range to flow flow billion CapEx $X.X to be spend in billion the of outlined. the operating cash billion. reflects to billion This $X.X range $X.X of previously $X.X the in to

and in investments. comparable significant expect to businesses This such growth decrease investment the November and beer XXXX Spirits of Moving pre-tax value of we is growth to margins our to since recognized fair Canopy returning cash the that, while capital to with The from support take strategic is in our migrate to basis combination remain best our the of was while net initial and Canopy; in expectations operating strong as the Constellation cash transformation in QX Wine gain class our of business and excluded from we we to recognized is an flow it I $XXX Spirits success. prospects into margin Wine margin approximately progress we unrealized our long-term Bill high-end future our expansion underway & to & closing, million loss profile business flexibility for Canopy Beer of of total our as investments expect achieve well want are and the reiterate questions. of which results. And believe enable throughout XXXX, happy We fiscal I opportunities. shareholders, XX%. in million. have both to to making in our your positions and In continue to ongoing continue to The future will allocation growth $XXX

Operator

line the of Bonnie [Operator Instructions] Goldman comes question Herzog Sachs. from Our first from

line open. now Your is

Bonnie Herzog

you. Thank everyone. Hi,

William Newlands

Hey, Bonnie.

Bonnie Herzog

actually just how to orders been of color more that you've May demand I little had pressures strong was to you the Hi. out-of-stock end We're the during given forecasted get supply. facing. a was temporarily stopped aware on hoping in relation your guys

have are first, seen are pressures in certain broad-based place? your just this get caps was then, these worse sizes or better And June? Thanks. on more finally, maybe or any specific in in pack specifically, there portfolio? SKUs these And So, you or impact still

William Newlands

of inventory main two things are and demand. the Obviously, the tightness driving Sure. consumer robust first foremost,

in my has of demand opinion, we anticipated. And that's Our what always excess good been consumer news. well in

of care The my somewhat that that in we're and the take quite outage for from our fiscal a portfolio. has that Garth tighter would year. end different, quite is made we of normally hold. of script, was represented the all It's produced we where total power mainly the I SKUs. want of which itself position all made of to said, With second inventory than the of This point that last our SKUs frankly, at will piece the year which that year over the occurred obviously course February, producing made that of XX%

seeing we to make expect from product very different tightness to we're actively what portfolio. the course the we to we providing demand sure the with mix very that year. working against during of while we And that continue our distributors we're supply make of strong do summer, So, the our saw it's last sure are right

Operator

Thank you.

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

open. is Your line now

Nik Modi

morning, Good everyone. Yes.

then, would you of is, those on housekeeping, what on yet, you June I lot including households, just Bill, have that a that wouldn't brands you around households portfolio pandemic, the mean new was And be many of beer just like? recruited any postmortem you and interesting. a I Constellation's broader any Have but wondering So, know gained sharing depletions. consumers brands isn't the quick done I context month perspective early would the prior? new new question the recruiting over during really be look color mind helpful? into weren't portfolio

William Newlands

Certainly.

and up June enthused consistent [indiscernible] how isn't you're So, correct. finished first last certainly part our setting yet. strongly. we question first days is your long-term of the -- couple Well, We're very your assuming over of and algorithm, with by it is

to look June So, we think is pretty good. going

Secondly, brands, broaden households, our beer. in reach and continuing are obviously relative Nik. our core across develop We particularly to to

in you that our only market non-Hispanic are Garth quarters, out we're us increasing in because just the Hispanic It's difficult think for in that prior well. penetration break broader think and non-COVID, COVID core Modelo, but of how an much this a in said point seeing of market If acceleration such of we the its little as not rapidly I community. versus about Modelo was this at to

of has on and So, continue. Part a that those us expect are an our to any trend portfolio would obvious agenda. for consumers in is, difficult gaining I to put percentage been of we it's driven innovation been our that What little has that exact things. say we by

the meeting are needs, ever we occasions before drinking across portfolio, our whole innovation company. We have of because more consumer than across the successful agenda more consumer

to going consumers franchise. bringing continue we're to our So, in up expect into come for those I are new to we that see some would occasions people because opening acceleration,

Operator

you. Thank

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

is line open. now Your

Lauren Lieberman

to of you how thanks. in morning. was pricing. broadly was Great, Good I if is greater driven your through X% the just price the for was curious much beer of Its year? if this about little Or bit on thoughts And a north market? by come about and I curious could beer was talk that Thanks. pricing there some mix? pricing starting mix

William Newlands

Sure.

said about we pricing weigh course and factors algorithm we about a the beer we're we're appropriate our decide we see all year X% keep the going pricing. to profile have over on that growth given the that. that's to to when with what sticking as it We with of We continue think as calls. X% do We our prior

I continues in which think be business it's Modelo, a our on number also accretive growth driver is mix to to basis. one important say, our very

certainly as see of So, that as us we is to all Modelo acceleration mix kind it businesses accretive continue to our in see when well. grow, of you

both them things course additive quarter year. the would additive to So, of over were the of expect I in we think and those be the

Operator

Thank you.

the Our Gajrawala question Suisse. next comes of Credit Kaumil line from from

Your line now open. is

Kaumil Gajrawala

get you high feel -- run range to continuing with to of like will getting that come be? you're where you like thinking start to and to into abatement are you're really that think better to want the maybe get pressures to Digging running issues XX, the you depletions back that looks at Do [indiscernible] connecting supply you Does be back about everybody. able Or off you the depletions want just Thanks, to at single-digit the them maybe to how any where half? the you Hey. inventories being back to Thanks. to supply or inventories adjusted. of in do need be? a supply

William Newlands

of the supply of Mexico in Remember, take We course made that occurred issues think clear. in several this of the of year. reasonably themselves February I end expect probably because growth points the We'd the of abatement Texas. power care at outage top-line lost over Northern to the and we of that

certainly we a had So, shipping muted scenario.

very the the pick of to expecting over We demand to And will that we're be course year. expect of up solid. the still remainder

So, expecting see will in that we are X% of marketplace, say we'll X% meet we the which the fully course demand the be over that to to range in continue year. to the

Operator

you. Thank

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

open. Your line is now

Sean King

terms I of color the like average greater for XX% for question. the the of inside I close the XXX% thanks than are that, that Is seeing beer. what in draft at quarter quarter? at Great, and that of gave you And that's you the Yes, on overall? growth on-premise [ph]? was guess appreciate the amount the But

William Newlands

Yes, of that's quarter. the over average the the course

below were his it's what increase we was that to Garth remarks, it year. pre-pandemic really As still out but big a in is last what pointed

developed more in markets discussions, as we are still well. quickly we've certain than as others said So, prior think

going We as accelerator the of pent-up prior expect certainly the fraction let's the over are it home, would go forward of say And continue looking see demand year. progress in an opportunity people that recalling on-premise what to year to channel it fair we So, through consumer face summer. a out off. that's think be some would of was last as acceleration of that to lot be the there's some simply to was expect to your of a the I we on-premise COVID to it, the versus restrictions continuing channel the summer, course come the

think care we going itself that's of So, to all take good on. as are the year goes

Operator

Thank you.

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

is now Your open. line

Bryan Spillane

morning, A Good Garth. question everyone. for

follow-up Just inflation becoming the around uncertain. wanted more to on commentary

we by we versus flexibility just today you. give can up fiscal flexibility terms types if beginning And that of are pressure to where growth goals areas the What points more to comment profit the could step year, the so that Thank you just just much how of related inputs back you are becoming if of cost? can be? been this Or has could at two in then, your higher? sense hit coming on you it us potential certain, is So, -- understand tie place to what that. were in inflation you to as kind the is if eaten labor same well, maybe trying of of things packaging, a year? freight, Just where

Garth Hankinson

the of issued within our were structure Yes. that taking single-digit we range. and guidance, low-to-high given reminder, any that mid-single-digit And we was Thanks, talked are range. the inflation account expecting in cost overall, low And just when we inflation QX on our into the kind we of that, said we Bryan. about as inflation a to kind item seeing line

a We have that entered have a and policy effective the at hedging in time, we said. about as in as -- I good place we year we position pretty talked

of So, kind as outlook still for of the we all, look remains same. out the year, first this inflation

going The is nature. just the spike this temporary, Our still we it's outlook a though as there. going how blip, to it well have right? question bit but from be get like as It longer of sort of a on of take advice might seems to to of that is external bit as in kind a that is kind down temporary come inflation

somewhat And labor dedicated get lines indicated, as so, has now those mostly right the things intertwined that's you watching and it and and made trucking market to are if so, logistics transportation, really and and will. competitive. labor, that more things becoming The more you difficult are we're around

a absolutely So, concern. that's

to watch natural glass, continue right? and impacted Glass, glass gas at aluminum We natural we look by -- to because is gas. then or

to the long don't as sit are as significantly through as here the we our watchful to today, the able we're of feeling we're a get those we inflationary they go most through as like year. areas So, as in position be worse for I kind we're go we cover similar year. it, headwinds said

Operator

you. Thank

from from Evercore. next of question comes Serotta Eric Our the line

Your line is now open.

Eric Serotta

you're category capacity related ABA you. additional and reiterated you're get for at X what Hard believe more And Seltzer's more Seltzer of you hoping that, I granularity more to next category that have year ABA than to the as you'll Nava broadly? bit to or the doubling the year. thank expecting ABA and the Corona Bill, hectoliters this Great, a million capacity from little category broader

out, pan ABA If on is beer? your traditional how don't growth forecast flexible to that capacity produce

William Newlands

just far I in irrespective significant of one so expecting Modelo, year speak. with XX said to roughly to hitting XX% which and what number did capacity overall. the Hard will you is We're I somewhere Hard Hard cases the in and Limonada of Seltzer portfolio is doubling XX% we growth point, that somewhere for our range, Pack. million this last our really process to to that remain introduced Seltzer capability the the category second the that grow going So ABA still very growth. remind obviously, year, year we're related we driver We've And despite size the SKU. Variety range excited in one this that market is earlier, our about as got Seltzer again,

and flexibility is the used like can So, this around the that really within And say business. the that put so we be entire comfortable how are I packaging do in What profile -- would is, very business. forth, growth significant serve as we with across of capacity the things many our business anyway. the and have we

any capabilities category point consumer adjust any any sub-segments make particular of hard we We've demand. production in have can at So, to to within time. the is in on the that worked do so a if our sure changes we beer any depending there's in of capacity of there very change flexibility fair amount flexibility

Operator

Thank you.

Fargo Chris from the Our Carey Wells next question of Securities. from comes line

line open. Your now is

Chris Carey

you. thank Hi,

to you we step mix So, before I and a Price this can. in has business, a hit. I'm and medium margins portfolio what things longer-term and good targets seems there been that's Wine think actually it where the backdrop margin & have a the question are mix got are the much we inflationary to frame evolving. path more knew obviously, We story just deliver and like be going you about recovery also on of trying premiumization price But Spirits. quarter, was accelerated to the it back always a have think the here? certainly, can just

timeline targets think this So, of maybe time continuing I you take on this quarter informs over how at if margin wonder capacity and you just you're business it deliver a and those happen? look that how can perhaps at what to can the look the to

Garth Hankinson

Yes, Chris. Thanks for the question.

So, indicated, quite doing well. as you topline the is

we're So, relates to top-line as transformation growth. our pleased very it with

that take a the all it it us going around around of XX% bottom stranded to there takeout that post to operating divestiture to pricing, XX% to there takeout order the we've $XXX not fall operating get cost cost was of about of was to about mix, margins always journey, line. margins. get And to we've previously, the is, number take terms what to in margin, million, will years going things. of the is talked is two In about said different was There which

the optimization seven that we Some that facilities growth, shared other large around seven that will a but sure the we topline as we we can transaction. divestiture, not to share brands also with strong of as did footprint as have wineries, brands brands of result a initiatives only the generate well behind Gallo number make that that, reinvest

optimization a get to consumers reflect So, sure some are they the brands. putting footprint pick the looking what when bottom-most make the there those up is as cost as well optimization, products we're in doing to that

transaction for wait cost well So, back initiatives. underway. those and identify that we're didn't We sit those -- savings, to the certainly close to

at a period we're interim business now that against as bit you say, deleveraged. So, the is just those. where we're executing But

this And out, of noted the of -- so, XX% the move as of kind divestiture. two until to end sort -- the will those as comes we downward that at you year years you we see operating blip that margins of cost rest post

Operator

you. Thank

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

Your now open. line is

Unidentified Analyst

Greg for is [ph] This actually on the line Kevin.

been Just they've trends some front far that plan of that seen. reopenings, seeing. it's that running velocity of one the on on-premise your quick channel you question in Many have guys so the of in terms follow-up noted peers of of been have number the

how but guys some And Thank you've seen over reopening on would seen last the think thought changed? Have maybe full the it You you. year you gave helpful context maybe than year what would could be? talk faster results? you that quarter, phase full the you have impact how for about expectations you your

William Newlands

Sure.

things that in states, pandemic, The see states the other improve don't seen the -- it as But of and have tremendously. and where course certain so often we you take around and one, get in last me XX over we've forth. stops some Greg. and the things starts accelerate you and seen improve so months on Let

year, prior of is, 'XX. the XXX% perspective the depletions while in represents business at calendar in still versus than excuse think I our year percentage me, is calendar it seen -- look less fiscal important the a to that thing wherein year we've from was in our bit growth on-premise the our quarter overall

So, think some acceleration still opportunity to come. and we there's still

had -- Day. network We exceptional job Labor July, the and an Memorial Mayo, exceptional Xth also things we of with did times with that of winning did like Day. distributor an our does We it have de Cinco it matter,

ago heavily shifting some massive be occurred predict of So, good we channel to was year The went still a that think channel there's to the going a occurred? challenge There acceleration. you of shifting how to much opportunities amount that when the off-premise. for

been on the has seeing back now on-premise IRI data You're the Nielsen and and comes somewhat muted.

and our seen, direct-to-consumer a across noted significant in in e-commerce three-tier increase So, we we also have our business. as the scripts,

out all shake channels is those real a sort So, how of question.

encouraging that part the across remains. we consumer business which we continue can all the we're has will strong and channels irrespective think to extraordinarily demand that against been I consumer think in. chooses our track The channel of engage and excited

Operator

Thank you.

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

line is Your now open.

Andrea Teixeira

the Yes. Thank you for question. taking

you below like, it's just you So, one, engaging. commentary on as it still said level. this said now -- 'XX I just calendar are consumers And on that wanted to follow Bill this where the last seems

see haven't third in some to the transit very a strong easy So, very and your consumption obviously, comment on your is are still little that that said right? home you and you the big something production of very your a of Like that? still shipments. going stronger at quarter. that comp though how shipment fair bit despite that? seeing Is you you're still the comp have is you then, at a be still just how shift April, going second by -- consumers for Even quarter, engaging given And of also you brands that quarter Mexico. transition? you normalization can that it on is to clarification the gives that only the So, to the home built on have on from inventory say that see a yet, and the lot like but inventory you a Is

William Newlands

Sure.

steady mind, bit. start quite the pandemic. we consumption just based around and let's question moved throughout that It's with per So, what consume see, around Keep in on has has how a capita remained where on-premise. people the pretty can

going to going I state think beverages, alcoholic it's are a restaurant a difficult from really depending quite how predict states precisely whether allowing moment it's a on takeaway I bit not environment And certain or as operate. are said to restrictions still and not. by individual So, for are ago, vary, the consumers to some

continue. e-commerce itself consumer think you changes to are behavior how going it's be some dynamic until to the sheer very going direct-to-consumer will the and all land. difficult So, say to out, would this exactly I where Other of I plays predict see three-tier shopping than

we our which said that major three-tier It's grown and sectors e-commerce glad direct-to-consumer, and very and playing out around the showing well investments capability those I'm calls, made As have we we've to prior it's in have takeaway in tremendous pandemic. in did. increase

going We're in that was it to make continue February, relates around solid the include As the a a up we're very we've to have believe good power inventory, a to to challenge challenge year second to we one-time position in quarter year. we would strong and as us. outage expect occurred upon that would that which the I expect very the said, have, and is

Operator

Thank you.

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

Your now line open. is

Steve Powers

then, Hey, of Bill, ceiling on Thank guess weigh number given I much. quarter. out on ask you the ran about think trajectory or Garth, the I to questions for said, you I'm that last I I guess quarter that of broad we And just is know I kind or terms wanted the but just -- margins you've in up brushstrokes that explain weigh the to million very topic supply. physically whether how over very lot to beer the beer just XX you should to a a -- much what got round already, -- XQ? guys. helpfully you understand of of beer margin year. half? will about able a has XXX in remainder And kind you're is to just think around will in consensus cases in the first through shipping items, just and sequentially that step of ship million really in relative second in trying all dimension I there back of the was what doable

there, there, is order on both. of helpful. the to Thank we If the a focusing may biggest very detail having any should be just you provide you. could would more items impact Thank that in terms be rank be you

William Newlands

Yes, you bet.

first quarters. with it's an and will the important mentioned start is half. So, Garth we today, -- the let prior we The in cover mention but that it second one thing did half, then but haven't one me

year Our was able a of during end opening extension COVID. year, last weren't quarter because Obregon delayed we last of at of -- the construct to the roughly Obregon,

to as our are demand we're -- able to continues our meet that make inventory carefully everything once So, running distributor meet been we that move because summer it's very certainly demand. going to forward has efficiently our it's we sure meet the partners will very But out? we I strong, to demand and consumer to being key robust to up now Obregon not demand, said as earlier. help with but Garth, as to that to selling a are the as we retail network We're just able be as our and in and and big helper able to take it position a certainly be is we running. Admittedly, certainly, loaded startup. certainly locked It's you is expecting be helping the and that that's that expect and working normal situation want season during area. get

Garth Hankinson

Yes.

follow-up to question. margin the Just on

really QX, inflation, it's mix, depreciation, in impact stated weighted of drivers really, as terms and margins. equally we big and in three those of So, on the of are those kind

year, the about venture front, joint also Hard the we as of Corona the at year our with launched going [indiscernible] to well in on glass of #X, fact impact as #X just then full Corona half we as depreciation depreciation more it's through us this hedges So, roll-off. June. Inflation, Pack go year Variety kind more comprised that's And Seltzer increase again beginning, -- second is I think in one covered, the because mix year then we've and Limonada Seltzer million that have kind mix, something SKU we of really and Hard some we things. Obregon I was launched year the the was that's the of of here think Pack an that started Variety $XX as in [ph], and the other in

mix buckets. those more the a across through -- the be really we as year the equal impact impact But of well. will equally go three there is as balance So, it's

Operator

Thank you.

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

is now Your line open.

Laurent Grandet

[indiscernible] household the was to the hi, from [indiscernible]. for you. Thank these recently a test kinds XX% queue. not thanks everyone, penetrate about And me a right were pleasing most spending in record and Up squeezing for as to

brown/black seeing and [ph] within XX. are we Hispanic, Seltzer Hispanic to flavors, specifically bolder to XX new household with up going penetration now So, targeting

with portfolio? Hispanic portfolio reach that a to not, you. So, current see my doing you your what risk question more to Thank you as is Seltzer do And your And are Mexican consumer of why? if beer?

William Newlands

are beer of fortunate have community that our behind. know, Mexico growth. very Well, is from we much that Certainly. are strength Mexican and see portfolio we authentic as to do. strength we Hispanic brands And you continue our with to iconic, brands the These very

Hard of think see the Hispanic The Modelo/ with is in Modelo of As opportunities not said household still not but despite I've with the with I've we continue said I to an Modelo our Corona to Corona penetration in calls, example. seeing at you, you, the prior rapid -- level Seltzer. as over-development growth community We're also

particular consumer needs community into and products. that reaching those by meeting new are occasions new we with again meeting So,

So, going see of job we doing community the of the in continuing those and Hispanic we are with we're non-Hispanic that important our very profile Mexico hopeful community comfortable element to part from portfolio be expanding we Hispanic as and an growth recognizing with Seltzer relationship with the the is brands well. iconic think the also that community, a great the into

Operator

you. Thank

from the Bernstein. of Our line next Trevor comes question Stirling from

now is line Your open.

Trevor Stirling

Bill. quick please. Hi, from questions my Garth, and good side, afternoon, Two

or you those inflation that, of given with point ago, today the related to changed cadence second three outlook? for you view FXX the I and As anything compare thing to change the your either of think to need months X% sit that algorithm. have think to out? had and about hedges X% high aluminum pricing months price Do talked might staying these as off, as change you the that spot rolling you XX historically, given you've

William Newlands

sensitivity I'll course of appropriately we X% during obviously take and help part. X% when the the cover take occur that continue it year. inflationary the price, any to raise you to effects the long-term price the is with think the price part, to Garth. Relative We price going to you Maybe your expectation. dynamics does recognizing, be our balances that you first believe

we So, those continuing we're well and that would is pretty X% balances of comfortable, that all answer, see to factors that X% algorithm of the right into future. the

Garth Hankinson

part expectations for point the his Bill early the that too year for to Yes, as I our our view retail depletions beer our would in exceeded in our one distributor, make of the outlook business as end. highlight, in question, terms noted partners. expectations say the one-quarter thing well changed full of right, first The our our I given script, this as that that any year. changes at the of would it's of QX time, for us to

the So, that's we go see sure the all look, guidance repurchase something a on through related on reaffirm that QX year. EPS do you when a with the we year tick-up of we'll provided of as right the expectations. bit as through And we watch and to closely to guidance program. our our to and and our through be share changes move as balance comfortable the we very, business, -- today But of we'll that with update very now, very we're

Operator

over turn to this Thank you. questions. call remarks. closing to I back showing Newlands time, would I'm the for Bill no like At further

William Newlands

for Thank call everyone you, our today. joining

the our a season. us 'XX to summer with should is head into continued as clear, key momentum off it be think we fiscal strong providing selling I start,

we to brands and Our strong performance continues spirits are year to and deliver goals. another long-term across connected consistent well-positioned wine, collection powerful gain consumer of beer, our of traction with

and to progress flow repurchases by expect billion commitment generation Our robust $X good Thank in of have your closing, to wish Xth a celebrations during happy I'd products. and a and spirit all In to make look throughout allowed our the share fantastic us 'XX. again, that we year, with of like and return fiscal friends you and everyone make fiscal July you, updating hope fiscal cash we forward continued shareholders family line to summer. as with beer, 'XX significant include to our wine to everyone

Operator

This concludes today's Thanks call. participating. conference for

now You may disconnect.

Constellation Brands (STZ) 30 Jun 212022 Q1 Earnings call transcript