STZ - Constellation Brands, Inc.

Operator: Greetings, and welcome to the Constellation Brands Q3 Fiscal Year 2026 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Blair Veenema, Vice President, Investor Relations. Please go ahead, Blair. Blair Veenema: Thank you, Kevin. Good morning, all, and welcome to Constellation Brands' Q3 Fiscal '26 Conference Call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. We trust you had the opportunity to review the news release, CEO and CFO commentary and accompanying quarterly slides made available in the Investors section of our company's website, www.cbrands.com. On that note, as a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in the news release and website. And we encourage you to also refer to the news release and Constellation's SEC filings for risk factors that may impact forward-looking statements made on this call. Before turning the call over to Bill and Garth, please keep in mind that, as usual, answers provided today will be referencing comparable results unless otherwise specified. Lastly, in line with prior quarters, I would ask that you limit yourselves to 1 question per person, which will help us to end our call on time. Thanks in advance, and over to your questions. Operator: [Operator Instructions] Our first question today is coming from Bonnie Herzog from Goldman Sachs. Bonnie Herzog: Hope you're doing well and happy New Year. I guess I had a question on your beer op margins. They came in a lot stronger than expected in the quarter despite the volume deleverage. So hoping you could talk further on some of the puts and takes behind this strength. And then thinking about your full year guidance, which you maintain, it does imply much more modest beer op margins in the fourth quarter, which I know seasonally is a lower quarter. But is there anything else that is expected to weigh on margins in this next quarter? Maybe aluminum, or if you could just talk through that? Garth Hankinson: Thanks for the question, Bonnie, and happy New Year to you. So first starting with Q3 margins. As you indicated, volume declines certainly were a headwind in the quarter. Additional headwinds in the quarter were tariffs, as you noted, logistics and then brewery maintenance. Offsetting those headwinds, we continue to make good progress against our cost savings initiatives. We had favorable pricing from the actions we've taken in both the spring and in the fall. And then there was a depreciation timing benefit that occurred in Q3, which was favorable on a year-over-year basis. As we think about -- or move to Q4, just to underscore what you said, it is our lowest quarter from a seasonality perspective, makes up about 20% of our overall volume. So fixed overhead absorption will be most amplified in this quarter. The depreciation benefit that we saw in Q3 will actually turn into a little bit of a headwind into Q4 as additional assets come online or are put into service. And then tariffs will be a further headwind in Q4, really related to a couple of factors, one of which you mentioned, which was aluminum and the pricing of aluminum which continues to be pretty strong. There is also the ongoing and as expected shift in product mix, so more to aluminum, from glass, and we'll see that in Q4. And then there's also a timing element to tariffs as to when the tariff gets accrued and goes into inventory and then when it gets released in the P&L. And that will be a bit of a headwind in Q4 as well. Operator: Next question is coming from Nadine Sarwat from Bernstein. Nadine Sarwat: Another one on beer margins, though perhaps with a longer-term perspective. So you called out a number of the factors in your prepared release and in your answer just now about the pressures that beer margins will face in Q4. So with that in mind, how should we be thinking about the 39% to 40% beer margins for fiscal '27 and '28 that you guided to back in April of last year? Is that something you still believe you can achieve? Should we be thinking of margins closer to where we were this year? Any color would be helpful. And then if I could just squeeze in one more on depletions. Nice to see that come in, I think, ahead of some expectations. Any color on exit rate or what we're seeing in December? Is there any sequential improvement or more of the same? Garth Hankinson: Thanks, Nadine. I'll take the first question and then Bill will take the second. But as it relates to FY '27 and beyond, as we said back in our Q2 earnings call, we'll provide more color on what our expectations are for FY '27 and beyond in our April earnings call. That's our normal cadence, if you will. It allows us to see how the rest of the year unfolds from a consumer perspective and from a macroeconomic perspective as well. So more to come on that. That being said, the guidance that we provided last April was given under a different set of macroeconomic conditions, and the macroeconomic environment has worsened since that time. So that will all go into our planning process and will be reflected in the guidance that we give in April. William Newlands: And, Nadine, relative to December, December came in roughly where we expected. It was fairly consistent with our expectations. For those of you who track the Circana/IRI data, you saw there was a very strong result against our business around the Christmas holiday. Noting, of course, that that's a great reflection of the strength of our overall brands and the brand health that exists for our brands. And therefore, we were quite comfortable coming out of December as the first month of our last quarter of the year. Operator: Next question is coming from Lauren Lieberman from Barclays. Lauren Lieberman: Want to talk for a second about capacity and CapEx. So in the slide deck, you reiterated the plans for 7 million additional hectoliters of capacity through fiscal '28. I think that implies sort of heavier CapEx in 4Q tied to Veracruz. I just wanted to maybe get an update on how you're thinking about the modular capacity build-out over the next couple of years, managing that against growth projections to support kind of what are really the optimal utilization levels. And particularly, when we think about the fiscal '26 volumetric pace is going to be lower than what you kind of originally thought back in April, to your point, under a very different macro backdrop. Garth Hankinson: Yes. Lauren, thanks for the call. So the approach on the modularity of the breweries is we'll continue with that approach going forward. As we've said over the course of the last couple of quarters, the way we'll manage that really is -- when we bring assets online, and we'll manage to bring -- or we'll manage through the capacity in that manner. What we've also said, though, is that when you're building capacity in a manner which we've been building capacity with long-lead items, you are making commitments to that spend. And our plan for this year is reflective of commitments that we've made on capacity expansion. But, again, we continue to monitor this and assess where the volume is expected to be. And, again, we'll bring the assets online when we can. And to the extent we can delay or defer CapEx, we will. But there's a lot of long-lead equipment that goes into a brewery, and those commitments have been made. Operator: Next question is coming from Rob Ottenstein from Evercore ISI. Robert Ottenstein: Great. Moving more to -- over to the brand side. The Pacifico brand has been an extraordinary success. It's still relatively small, but you've been working on it very diligently for 10-plus years or so. Just wondering how -- what you've learned about the brand over this time, how incremental is it, any tweaks that you see in terms of the brand positioning and the pressure -- the marketing pressure, investment pressure behind the brand for it to kind of get to what you think is its full potential, which my understanding is, is to be a very strong #3 brand in your portfolio. William Newlands: Yes, Robert. Pacifico, obviously, has been a tremendous success to date, much in the same way that Modelo initially developed in the west of the United States and then has progressively moved east to become the #1 player by dollars in the United States. Pacifico is doing a very similar approach. It's the #2 brand in the State of California today. It skews younger relative to our overall portfolio and really has resonated well with consumers. As you know, it's the #1 social -- #1 on social media in terms of share of voice, and it has gained 1.5 points in the on-premise. So you're seeing significant gains in that arena as well. So we continue to invest behind this brand. As you point out, we think it's going to be a strong #3 in our portfolio as time goes forward. And you should expect to see us continue to put significant emphasis on this as it builds its way across the country, similar to what Modelo did several years ago. Operator: Next question is coming from Dara Mohsenian from Morgan Stanley. Dara Mohsenian: So you mentioned mid-single-digit distribution growth for the beer portfolio in the quarter. Just as we look out to calendar 2026 post the spring resets, do you think it's realistic you can drive shelf space gains for your portfolio with macros where they are? Or is that less realistic just given the weaker velocity we've seen over the last year or so? And maybe also you can just touch on the beer category itself and what you're hearing from retailers as we think about shelf space for the category in the balance of 2026. William Newlands: Sure. Let's start with the distribution side. We continue to see distribution as one of our strongest opportunities going forward. Given that our portfolio gained share in 49 of the 50 states, we continue to earn additional distribution capability and distribution positions across the country. Now those will probably change some. You've seen a radical increase in distribution around Pacifico, going back to Robert's question a moment ago, as well as Victoria, which also has grown double digits for the most recent past. So we continue to see distribution as a significant opportunity going forward. Remember, Modelo itself, despite the fact that it's the #1 beer by dollars in the U.S., it still has 20% fewer PODs than the broader domestic players who we compete against. So there remains plenty of opportunity for distribution to be an important part of the future. That has been reemphasized by our Shopper-First Shelf, which has allowed retailers to recognize the opportunity to build a stronger section. And that will be a significant part of your category question, is as more people do Shopper-First Shelf, it will be better for the category and, as you would expect, on brands that are growing their share like ours are, it will be good for us as well. Relative to the beer category overall, it still remains challenged. And it's largely around the Hispanic consumer. 75% of the Hispanic consumers are very concerned about the socioeconomic environment and they're being much more careful about their spending patterns, spending much more on what you would call consumer essentials versus other categories. So I think that's going to continue to be volatile going forward. But this is where our focus remains on controlling the controllables, and that is distribution, that's price pack architecture, that's doing the right things to set ourselves up for a successful future. Operator: [Operator Instructions] Our next question is coming from Drew Levine from JPMorgan. Drew Levine: I wanted to follow up, again, on the beer margins implied for fourth quarter given the low single-digit absolute COGS increase for the year. Implies gross margins, I think, something in the 47% range. I understand that it is lower volume as, Garth, you well mentioned. But I guess maybe if you could sort of provide a little bit more context on the expected headwind from aluminum and depreciation that you mentioned, any sort of quantification there? I'm just asking because, I guess, last year in fourth quarter, volumes were down as well and, obviously, much stronger margin performance. So just on the margins, that would be great. And then another follow-up just on the depletions in the off-premise, I think were down 2.9%, ran decently ahead of where we saw both Nielsen and Circana end up in the third quarter. It's the second quarter in a row that's happened. So wondering what you're seeing in the independent channels, if it's just sort of a function of easy comparisons, or are you seeing any sort of encouraging trends in that channel? Garth Hankinson: Yes. So just to reiterate on the margins, what the headwinds were and, again, you noted that it is our low seasonal quarter. Just for clarity, again, it's 20% of our overall volume for the fiscal year. As I mentioned, depreciation, which was a benefit for us in Q3, will be an incremental headwind in Q4 because incremental assets are being placed into service. So that will be a headwind in the quarter. And then on tariff, as expected with tariffs, aluminum pricing has gone up, so the tariff has gone up. There's been an ongoing shift in our business, in our portfolio towards aluminum. That's continued through the fiscal year, right? So we'll see the impact of that in Q4. And then there is a timing element around tariffs, which is you incur the tariff when you bring it into the U.S., but then it doesn't run through your P&L until you sell it on. And so given the way tariffs have layered in through the year, there's going to be a higher tariff impact as expected in Q4. Another minor impact, headwind in Q4 is there were some expenses that we expected to incur in Q3 that had pushed into Q4. That's just timing. So a bit of a benefit in Q3 versus a headwind in Q4. William Newlands: Relative to your question related to depletions, I think a couple of things to keep in mind that you don't always see. Some of the regions have less tracked channel coverage, and those have been stronger, on-premise. A year ago, Modelo was #5 on draft, today it's #2. I already mentioned when I was answering Robert's question on Pacifico that we picked up significant share with Pacifico in the on-premise as well. So some of those areas that are not as easily tracked have gone in our favor, and that certainly has helped the depletion layout versus what some of the expectations were. Operator: Next question is coming from Gerald Pascarelli from Needham & Company. Gerald Pascarelli: Question for Bill. Just despite the continued macro pressures, your depletions have remained relatively consistent this year, just kind of down 2.5% to 3%, so not getting materially worse. Your beer business continues to outperform the category. It looks like scanner showed a little bit of an improvement in December. So just curious how you're thinking about a potential recovery, if at all, in your beer business looking out over the next year when you just consider some of the obvious tailwinds, the easier compares, the benefit of the World Cup, those types of things. Any color there would be great. William Newlands: Sure. Obviously, we're cautiously optimistic that we're on the sort of the plateau of where the business will be. But it's been really tough to judge. The volatility has been great. What -- so it's very hard to say that you've sort of hit the bottom. When you look at our omnibus study, we continue to see Hispanic consumers being particularly concerned. There seems to have been a little bit of uptick with the broader market community. And as I alluded to earlier, Christmas week was particularly strong for our business. But I think that's more reflective of when consumers are coming out and they're buying. They continue to buy our brands because of the brand health of those brands. There are some things, as you point out, next year, World Cup is a great example, where there will be things that are beer moments. And certainly, we believe our beers will help to support those beer moments. But it's very difficult to project at this point how this is all going to go. A lot of it is going to relate to what the -- how the consumer is feeling and how they're feeling about the sort of macroeconomic issues that exist today. Operator: Next question today is coming from Robert Moskow from TD Cowen. Robert Moskow: Thanks for the question. Unfortunately, it was also Gerald's question. But maybe if there's a way to think about it just quantitatively, your Hispanic consumer really started feeling the pressure in February of last year. You kind of see it in the data. And I guess what we're all kind of wrestling with is, once we lap that initial shock of restrictions on immigration policy, is it possible that it just gets a little bit less bad? So instead of mid-single-digit declines just theoretically with this cohort, since you're lapping the initial shock, it could be a little bit better than that? William Newlands: Well, we hope -- we assume that you -- we hope you're correct. That would be a lovely outcome. The thing that we consistently see, and as you know and we've said this in prior quarters, we track it by ZIP code. And with ZIP codes that have greater than 20% Hispanic representation, it still remains very challenging. That has seen some improvement in ZIP codes with less than 20% Hispanic representation, and you see a lot of volatility state by state depending on what is going on with immigration policy in particular markets. So all of those factors have been why it's been very difficult to predict, because you do have that volatility that goes on state by state, market by market. It's why we continue to talk about controlling the controllables. It's why we continue to talk about and put ourselves in a good position to win. It's why we have focused on the things that are working in our favor, things like Pacifico and Victoria, Modelo Draft, Corona Sunbrew, Corona Non-Alcoholic, all of which are working very well against our business and are positioning us not only to have near-term success, but for the long run as well. Operator: Next question is coming from Filippo Falorni from Citi. Filippo Falorni: Happy New Year. I wanted to ask on the beer pricing environment. You had 1.5% pricing in the quarter, but you have also some negative mix from package types. Can you discuss like how you're thinking that would evolve going forward? Should we still think this dynamic continues? And then maybe if you can touch on like some of the initiatives that you did with Modelo Oro and Corona Premier in terms of the price adjustments. Are you seeing a volume uptick as a result of the price adjustment there that could we see some more -- in some more other brands to try to respond to the macro environment? William Newlands: Sure. We continue to project 1% to 2%. We still think that's an appropriate level. As you know, it will vary higher or lower within that range depending on the market conditions that we face. But to your point, we are quite pleased with the initial work. As many of you know, during this past -- or this past calendar year, we adjusted Oro and Premier pricing to be more in line with the average price point the consumer was expecting for light beers. We're very pleased with what that looks like. Our trends on Oro and Premier have both improved, and we're pleased with that positioning. It also points to price pack architecture, which is also an important part of what we have done. We have added 7-ounce in a number of forms and formats in different states to, again, meet the needs of consumers who are concerned about price points because of their socioeconomic concerns and financial concerns that exist at the moment. Again, all of those things are trying to meet the consumer where they are today, and that process will continue going forward. Operator: Next question is coming from Peter Galbo from Bank of America. Peter Galbo: I maybe just wanted to ask a clarifying comment from your prepared remarks about the fourth quarter specifically. You talked about an expectation of year-over-year volume declines in the beer business to improve, I think, in the first sentence. And I just -- I wanted to clarify whether that is a shipment comment, a depletion comment, both potentially, but that we should still be expecting kind of a negative in the fourth quarter and whether it applies to both ships and depletes in beer. William Newlands: Garth will add on to what I'm about to say, but as we've made note -- we made note in our last quarter, we expect over the course of the last 2 quarters that ships and depletes will be basically equal. As you saw, there was some minor variation in this quarter. You would expect that to probably reverse itself next quarter. But over the course of the 2, third and fourth quarters, we expect depletes and ships to basically be exactly the same. Anything you want to add to that, Garth? Garth Hankinson: Bill, that's precisely right. And the comment was specific to billings, so to your point, yes, so that the second half of the year billings and depletions are largely aligned. Operator: Next question is coming from Bill Kirk from ROTH Capital Partners. William Kirk: So a different type of question. In December, President Trump signed the executive order pushing to reschedule cannabis. I guess if that happens, how would it impact how you think about your exposures to that segment? And then on the ban on intoxicating hemp and intoxicating hemp beverages, in some states, those have become kind of a real market. Do you think you'll benefit if those products go away, those intoxicating hemp beverages go away? William Newlands: Obviously, we have shares in Canopy that we still have available to us. And I think that could ultimately be interesting as that market develops. But we don't engage on a day-to-day basis in the cannabis business today. I think -- we have not seen a significant issue related to our beer business related to hemp. It has mostly been around ready-to-drink and ready-to-serve scenarios where there seems to be interaction there, and that seems to be where most of the interaction has come. But admittedly, consumers make choices around their disposable income and what -- where they choose to spend money. And therefore, as this develops, that's certainly something that we're going to be quite aware of and keep our eye on closely. Operator: Next question is coming from Michael Lavery from Piper Sandler. Michael Lavery: I was wondering if you could maybe just elaborate a little bit on how to think about World Cup. It's, as you pointed out, just a driver of occasions. But have you -- can you give a sense of maybe what you've seen in the past in terms of maybe a positive lift, or any changes to your spending approach? I realize you're not a sponsor. So do you still plan some ways to kind of spend additionally around it or just kind of benefit from the occasion momentum? How should we think about just what impact that might have both on the top line side and maybe your spending side? William Newlands: Sure. As you would expect, this is a big sporting element for the coming year. Sporting elements tend to be big beer moments. It's also a sport that overindexes in the Hispanic community. All of those things, therefore, overindex into our business. So we would expect, as the consumer engages with that event and the various games that will attest to those, that will have some incremental benefits for us. We will remain as diligent as we always are to get the right promotions and to get the right shelf presence and floor presence around that particular time. We'll also have in-game media, TV media. As you know, Modelo is the #1 share of voice and Corona is the #3 share of voice in traditional media. All of that will be done consistent with investing against sports, which has been the focus of our attention anyway. So we believe that has an -- that creates an opportunity for a strong window of time for beer generally and more specifically to us. Operator: Thank you. We've reached end of our question-and-answer session. And that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Operator: Greetings and welcome to the Constellation Brands Q2 Fiscal Year 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will begin shortly. You may be placed into the question queue at any time by pressing star one on your telephone keypad, and we ask you to please limit yourselves to one question. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Blair Venema, Vice President, Investor Relations. Please go ahead, Blair. Blair Venema: Thank you, Kevin. Good morning all, and welcome to Constellation Brands Q2 Fiscal 2026 conference call. I am here this morning with Bill Newlands, our CEO, and Garth Hankinson, our CFO. We trust you had the opportunity to review the news release, CEO and CFO commentary, and accompanying quarterly slides made available in the investors section of our company's website, www.cbrands.com. On that note, as a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in the news release and website. We encourage you to also refer to the news release and Constellation's SEC filings for risk factors that may impact forward-looking statements made on this call. Before turning the call over to Bill and Garth, please keep in mind that as usual, answers provided today will be referencing comparable results unless otherwise specified. Lastly, in line with prior quarters, I would ask that you limit yourselves to one question per person, which will help us to end our call on time. Thanks in advance, and over to your questions. Operator: Thank you. We'll now be conducting a question and answer session. As a reminder, please limit yourselves to one question, and if you'd like to be placed into the question queue, please press star one at this time. If you'd like to remove your question, press star two. A confirmation tone will indicate your line is in the question queue. Our first question today is coming from Nik Modi from RBC Capital Markets. Your line is now live. Nik Modi: Yeah, thank you. Good morning, everyone. Hey, Nick. I just had a big picture question on volume growth. The debate across the industry has been primarily about structural versus cyclical. For Constellation Brands, there's just a bit more of a nuance within the cyclical bucket. You're dealing with the overall macro consumer slowdown, but also suppressed sentiment among Hispanic consumers. We did some work, and it showed there was a rapid drop-off in sales volume around March, April of this year for the brands and the pack sizes that really over-index the Hispanic consumers across your portfolio. That's right when the ICE activities started to pick up. The question, I guess, is this: do you think volumes would have grown in absence of the ICE activities based on everything that you've seen and all the data that you have? In other words, will volume growth resume when we start lapping these activities next year? Thanks. Bill Newlands: Yeah, thanks, Nick. You know, the key thing I think around that whole question is exactly what you put your finger on, which is what is the consumer sentiment? As you know, we are doing a monthly study of all consumers, both Hispanic and non-Hispanic. The thing that has stood out for us is that 80% of surveyed Hispanic and non-Hispanic consumers continue to express concern about the socioeconomic environment we face. 70% of those are specifically concerned about their personal finances, which goes right back to your point about cyclical versus non-cyclical. We've got a consumer base that's pulling in a bit, and they are not engaging. At the same time, you're seeing increased loyalty. Our loyalty is up with Corona in the general market. Our loyalty is up with Hispanic consumers for Modelo. You know, a lot of people ask the question about Gen Z often. We have twice the share of Gen Z as part of our overall mix versus the industry average. We're sitting in a good spot as the consumer turns around and gets more comfortable with where they are. At the moment, there's just a tremendous amount of concern about socioeconomic issues really across the board. In our view, that's the significant thing that's been challenging both for us and for the category in general. Operator: Thank you. Next question is coming from Nadine Sarwat from Bernstein. Your line is now live. Nadine Sarwat: Hi, thank you guys. I'd like to touch on CAPEX. You cut your top line guidance last month. You have not cut your CAPEX guidance. Can you comment on the rationale behind that? Is there scope to cut CAPEX for years beyond this fiscal year, given the weaker top line? Thank you. Garth Hankinson: Hey Nadine, thanks for the question. Let me try to answer that. There is a little bit of a near-term and a long-term answer there. First of all, consistent with our capital allocation priorities, we're going to continue to invest in the long-term growth in our business. Despite the near-term headwinds that Bill just highlighted, which we see as being primarily cyclical in nature, we're confident in the longer-term growth trajectory of the portfolio. We still believe that we need to invest in incremental capacity. The answer to that nuance is if we look at FY2026, we didn't adjust CapEx for FY2026 because, as we discussed last month, much of what you incur from a CapEx perspective in a fiscal year is related to longer lead items. Those are sort of committed dollars, if you will. As we look beyond FY2026, however, even though we do have confidence in the longer-term trajectory of the portfolio, we are being very mindful and looking at ways that we could slow down or avoid CapEx, if possible. We don't have anything to share with you on that. As we said last month, as it relates to anything beyond FY2026, we'll cover off on that later this year as we give guidance for FY2027. Operator: Thank you. Next question today is coming from Rob Ottenstein from Evercore. Your line is now live. Rob Ottenstein: Great, thank you very much. I just want to get a little bit more sense about, you know, what you mean by seeing more loyalty for Corona and Modelo, and particularly Corona. If we just, you know, from the outside, without your data, Corona, Corona Extra is down more than Coors Light or Miller Lite. Never seen that before. Corona is more general population. I think it's what, 20% or 30% Hispanic. Just like to understand what you're seeing in terms of loyalty. Perhaps connected to that, very interesting movement within the Corona portfolio, right, with Corona Familiar doing actually extremely well and maybe actually a larger brand than we may think. Maybe give us a little bit of sense of how big Corona Familiar is, what you're seeing within the Corona portfolio, and what's the data that's telling you about increased loyalty for Corona. Thank you. Bill Newlands: Sure, Robert. As you would expect, we measure our brand health metrics consistently over time and analyze what the intent to buy is, what the purchase intentions are for all of our brands and businesses. That's where we begin to talk about brand loyalty, what first choice consumers would have in buying within our franchise. Now, as you point out, Corona Extra has been somewhat challenged recently. The broader family has done very well. Corona Extra provides an exceptional halo for the overall brand family. Familiar is doing extraordinarily well and one of the top share gainers in the category. Sunbrew, as you probably know, is the number one new brand in dollars and the number four share gainer overall in the category this year. Corona Extra continues to provide the kind of halo for us for the broader market that has been very valuable for the overall franchise of Corona. You'll also notice, as an example, Corona has been focused on Major League Baseball. If you watch any of the playoffs, you probably would have noticed that Corona has been all over the baseball playoffs as the official import beer of Major League Baseball. We continue to feel that Corona Extra is going to be an important part of our business going forward, but it also, as you note, really is a tremendous halo for other SKUs within the franchise. Operator: Thank you. Next question is coming from Dara Mohsenian from Morgan Stanley Investment Management. Your line is now live. Dara Mohsenian: Hey, good morning. Bill, I just want to return to the first question. In your response to the question and prepared remarks, you continue to emphasize that the recent beer depletion weakness you think is caused more by macro factors. I certainly understand there's a big macro component, but you don't seem to attribute much of it to other more secular factors on the beer category, including health and wellness, particularly with RTDs, cannabis substitution, lower consumption from younger consumers than past generations. How much impact do you think you're seeing from factors beyond the macro component? I know you emphasize your strong brand equity and your share gains, but these factors do seem to be impacting the beer category more broadly. I just wanted to understand your thought process there as your thinking changed at all on those non-macro sort of drivers as you look at the trends in recent months. If I can slip in part B, just the corporate response to the weaker top line growth we're seeing, can you talk about strategy tweaks to drive top line growth within a tougher environment and any opportunities on further productivity beyond what you've already done as you think going forward here? Thanks. Bill Newlands: Sure. We continue to feel that the structural element is relatively minor in the scheme of things versus the cyclical element. As we've covered numerous times now, there just isn't a lot of evidence that GOP is having much impact whatsoever. I think cannabis could be, as you go forward, to be frank, because, you know, as consumers are constrained about their spending patterns, they make choices as to where they spend their discretionary funds. Again, today, that's also relatively minor in the scheme of things. Part of what you're seeing with our work, and Corona Sunbrew is a great example, is going after a younger legal drinking age, Gen Z consumer. Part of what we observed is consumers, particularly around spring break, were mixing orange juice and Corona. Our view was we could do something much better than that in real time, which we did. It's part of the reason why that is the number one dollar SKU this year and the number four share gainer in the category. Relative to your question about the top line, one of the things that you historically have seen in other downturns within categories is that some organizations pull back on their marketing spend. We have no intention whatsoever to do that. In fact, in many respects, we're spending more than we ever have. You've probably seen, as I mentioned on the prior question, Corona's presence in Major League Baseball, Modelo, with the NFL and with college football has been very aggressively positioned, and Pacifico is the number one voice in digital. I think the important point to all of that is we're continuing to invest in the long-term success of our business because we recognize at some point some of these socioeconomic elements will ease and we'll be in a great position to return to more traditional growth profiles that we've seen in the past. Given, even in this tough environment, we continue to gain share in the market and have been the number one share gainer. Hopefully that answers, that was a complex set of questions, but hopefully that answers them. Operator: Thank you. Next question is coming from Bonnie Herzog from Goldman Sachs. Your line is now live. Bonnie Herzog: Thank you. Good morning, everyone. I had a question on margins. I'd love to hear more color on the beer op margin expansion in the quarter, I guess, as well as key headwinds to margins in the back half, considering your guidance implies a decent step down versus 1H. Thanks. Garth Hankinson: Yeah, thanks, Bonnie. Look, I mean, I'd say we feel pretty good about the margin profile that we laid out last month in terms of what our expectation is for the year. If I think about all the elements to your question, let me just start by talking about headwinds for the second half. First of all, the second half of the year, as you know, is always kind of our lower volume year. Even though we change guidance for the full year, that doesn't change our expectations for how the first half of the year comes in versus the second half of the year from a volumetric standpoint. As you know, in the second half of the year, that's, as I say, the lower volume half. It's also when we do some of our maintenance. Just traditionally, that's going to be when we have our lowest margins of the fiscal year. As I think about, again, sticking on margin, the headwinds that we noted last month still remain. We have about 100 basis points of margin headwinds related to fixed costs and incremental tariffs. We have about 60 basis points related to keeping, as Bill just mentioned, keeping our marketing investment in line. Oh, by the way, I misspoke just now. There's 100 basis points with fixed overhead, and then there's another 60 points on incremental margins. Those are some pretty big, pretty big headwinds. They get offset a little bit by some lower comp and benefits in the second half of the year. That really is the margin profile for the full year. Operator: Thank you. Next question today is coming from Chris Carey from Wells Fargo Securities. Your line is now live. Chris Carey: Hey everyone. Garth, just to follow up, are you seeing a pickup in inflation in the back half, or is that specifically around the seasonal volume assumptions? Just to clarify something on Bonnie's question. The question that I had today was actually around the wine and spirits margins. I think going to the second half of the year, you need to believe that these margins are going to turn positive, more than a little positive, to get to the full year guidance. What do we have to believe in improvement from the first half into the back half to see that level of improvement to get to that full year outlook, maybe some of the key drivers? As you think about going into fiscal 2027, there was an expectation that this business could return to a low 20% operating margin, which seems to be embedded in consensus expectations. Is that still the right way to think about it? I would ask it in a similar vein as the back half of this year. What do we have to believe that outcome of substantial margin improvement in fiscal 2027 is achieved? Thanks so much. Garth Hankinson: Sure. Just on the first question related to the beer margins that fall off the body's question, we're not really seeing any tick up at inflation in the second half of the year. It really is just the drivers that I outlined. As it relates to wine and spirits for this fiscal year and the improvement that you'll see in the second half of the year, a couple of things are going on there, which make the full year and certainly the first half of the year a bit messy, if you will. First of all, the converse of what I laid out for beer is true for wine and spirits, which is the bulk of our volume and sales occur in the second half of the year. We will see benefits from additional volume in the second half. That also tends to be when you see vintage releases related to our DTC business, which tend to lead to higher sales and higher margins. Back to the messiness of the first half of the year, as we laid out at the beginning of this fiscal year, there are a number of factors driving performance this year, specific to the first half, related to distributor payments, as well as some post-transaction inventory trips between ourselves and with our distributor partners. Therefore, that's what's made the first half of the year sort of look like it is and why we feel confident that we can turn that in the second half of the year and achieve the operating profit that we laid out in April. Bill Newlands: Just to add on to that, you know, we made clear at the beginning of the year that the focus in the wine and spirits business this year was to get the top line in line and to beat the market. We have now beaten the market for six straight months. Our business in Q2, very similar to Q1, on an apples-to-apples basis, was up 2%, driven by Kim Crawford and Meiomi. Meiomi, you may remember, was a brand we started from scratch several years ago. The 12-week numbers in Circana show Ruffino up 2 points, The Prisoner up 4, Unshackled up 11, and Harvey and Harriet up roughly 23. While we're not going to give any specific guidance yet for fiscal 2027, I think we're very pleased with the development of the top line in the wine and spirits business. We've returned that business to a strong share-gaining position and have been presenting those results for the last several months. We feel pretty comfortable with how that is developing and how the team has executed against that strategy. Operator: Thank you. Next question today is coming from Andrea Teixeira from J.P. Morgan. Your line is now live. Drew Levine: Hey, good morning. This is Drew Levine on for Andrea. Thanks for taking our question. I wanted to ask on the beer inventory rebalance. Maybe you could provide some context on inventory on hand at distributors now versus before the rebalance, and what gives you confidence that this was sort of more of a one-time event, I guess, rather than something that we should be more concerned about going forward. With that visibility that ships and depletes, I think the guidance is to largely track in the second half. I think typically there's a bit more depletes second half versus first half. Just any comments on visibility to that? Thanks. Garth Hankinson: I can start and then Bill can weigh in. First of all, the ship dip trip that happened in Q2 related to our beer business was a result of a couple of things. One was that, as typical with every year, we tend to ship in more in Q1 and Q2 ahead of the key summer selling season. That's just normal operating procedure. This year, as we went through the summer selling season, the takeaway wasn't in line with expectations. Therefore, distributors had a little bit more than expected as we exited this summer. The second thing that drove it is the ship dip trip is that we typically overship in the first half of the year to ensure that there's product on the shelves. Then there's a little bit of rebalancing that occurs in the second half of the year, usually in Q3. We pulled that rebalancing into Q2 versus Q3. That's really what drove it. As we sit there and look at inventory levels with distributors, they're at a good spot right now. We feel good about where our inventory levels are relative to where they are historically. I think it's important for us to note that the ship, the rebalancing of the inventories really occurred strictly with distributors. There's been no retailer destocking. We continue to gain PODs in shelf space. We have very good confidence in our ability to continue to generate significant shelf share gains, as one would expect for a portfolio that's growing, as Bill highlighted before, in 49 out of 50 states, and with the number one beer brand by dollar sales. We feel good about where we are for our inventory levels, and that's why we have confidence that for the balance of the year, shipments and depletions will be aligned with one another. Operator: Thank you. Next question is coming from Bill Kirk from World Capital Partners. Your line is now live. Bill Kirk: Good morning, everybody. Price pack architecture was a big focus before this recent deceleration. How has the deceleration impacted the plans for different pack sizes and price points? Maybe if you had been further along in those price pack architecture plans, do you think depletions performance would have been better? Bill Newlands: Price pack architecture is something that we've said we're going to spend a fair amount of time on. You know, would we, if we had known all the socioeconomic issues, would we have gotten that out sooner? I hope the answer would have been yes. The reality is this is a good long-term play for the business. You know, many of you have heard us talk before. We think there are some exceptionally good businesses at putting that together, meaning when you go in a store, you have an opportunity, no matter how much money you have to spend, you have a product available to you. Our focus on price pack architecture and smaller sizes and things of that ilk makes sure that we would have something that our consumer would be able to buy depending on what they have available to them. We're working aggressively on that in a number of fronts and with a number of brands, and that process is going to continue because we think that's not only important now, but that's also important for the long run as well. Operator: Thank you. Next question is coming from Filippo Falorni from Citigroup. Your line is now live. Filippo Falorni: Hi, good morning everyone. I wanted to ask first on the beer margin and beer cost savings, particularly you realize $65 million in cost savings in Q2, $105 million year to date. Any sense of what's the target for the year, and if you can give a little bit more color on the opportunities there on the beer cost saving front? Just to follow up on the prior question on tariffs, can you give us a sense of how much you realized in the first half in terms of tariff headwinds and how much to expect for the balance of the year? Thank you. Garth Hankinson: Yeah, just on the cost savings, first of all, I'd say that this is just, we continue to reap the benefits of this evolution from being a builder to an operator. As you highlighted, since our investor day a couple of years ago, we've delivered over $500 million worth of cost savings. Again, as you noted, so far this year, we've delivered over $100 million in savings. We continue to find ways to make our operations more efficient. A lot of that so far is focused on supplier and sourcing optimization and material and cost innovation. Included in that would be our move to 60-foot rail cars and our double stacking within rail cars, as well as a big initiative around suppliers and terms, if you will. This is going to continue to be a focus for us over time. We continue to think that there will be opportunities for us in logistics and manufacturing optimization. We know we don't provide quarterly or annual guidance related to our cost savings initiatives, but we will continue to provide updates on a quarterly basis once we achieve those savings. Operator: Thank you. Next question is coming from Carlos Laboy from HSBC. Your line is now live. Carlos Laboy: Yes, thank you everyone. Bill, maybe you can go back a little bit and talk to us about the brand positioning of Corona itself. You know, how might you be refreshing or tweaking it? The reason I'm asking the question is because, you know, we've had over 40 years of beach, rest, and relaxation. I'm wondering, has that become too sedentary? An interpretation of beach for a premium beer consumer that's turning to more active lifestyle positionings. For example, Michelob Ultra, right? Even in other countries where the Corona brand is doing very well, it's sort of been reinterpreting beach more as an active lifestyle and as a regeneration concept. What are your thoughts on how you tweak that brand if it needs to be? Bill Newlands: We are going to start. We did not answer the last half of the last question. Garth is going to cover the tariff, and then I will come back and answer your question, Carlos. Garth Hankinson: Yeah, just on the tariffs, just to be clear on that, right? In our beer business, we're expecting the tariff impact to be about $70 million this year. On the wine business, for that to be about $20 million. I would say in terms of how that occurs throughout the year, that will largely track volume. That's the way to think about the impact on a half-year to half-year basis. Bill Newlands: Progressing to the current question relative to Corona, you may have noticed the evolution this year of the Corona advertising proposition to really return to the focus being on the beer. I would argue that we probably got a little too celebrity heavy for a window of time, and we've brought that Corona essence right back to where its iconic value has been, which is the beach. Now, the beach lifestyle, I would argue, fits into many things that consumers are looking for today. They're looking for refreshment. That's first and foremost what Corona is known for. They are looking for things that are different in experimentation, particularly a younger consumer. I'd say Sunbrew is a great example of us playing right into that speech and attitude. That goes right to a more active lifestyle that Corona Sunbrew has been presented against. I think the important part for this is, you know, one of the things that both Corona and Modelo, and currently Pacifico is developing, is we haven't flip-flopped our positioning over time. Many organizations have a tendency to flip-flop their positioning every couple of years whenever there's a change of brand management. Our approach has not been that. Our approach is to stay focused on what we feel are the strong essences of those brands with some minor evolution as part of the marketing development. I would argue Sunbrew is a great example of where we can leverage that sort of beach lifestyle and refreshment value of Corona Extra into a new and exciting piece of business for us in the form of Sunbrew. Operator: Thank you. Next question today is coming from Kaumil Gajrawala from Deutsche Bank. Your line is now live. Kaumil Gajrawala: I'd like to follow up on two questions. The first is, you know, you have these economic challenges in addition to the Hispanic consumer. If you're twice the share with Gen Z, Gen Z also has twice the amount of unemployment. It sounds like your responses to what to do is to keep up on marketing and such, but is there anything you're looking to do to make it more affordable, get them to go back out, just, you know, not necessarily on the marketing and the branding side, things sound fine there, but rather on the what can you do about it if they don't have as much money, they're not as willing to go out. The second question on margins, I get the 160 bps of sort of natural drag, which you talked about, but the spread between depletes and shipments isn't expected to be nearly as substantial. I'm just curious why the margin guidance is still maybe a bit lower than we would have guessed, given the beat this quarter. Thanks. Bill Newlands: Sure, why don't I take the first half, Garth, you can take the second. Relative to the whole question of affordability with where, when consumers are somewhat constrained, you probably all are quite aware, we have repositioned Modelo, because our belief is the light beer consumer is looking for a bit of a different value proposition than it would be for Core Modelo, as an example. We've done the same now with Premier, and we're positioning that, again, at a somewhat lower price point from where those have been historically. We believe those are going to be valuable. First of all, it speaks to where the consumer of high-end light beers wants to spend and at the price point they want to spend. I think that's going to position us well. Early days on Premier, which started earlier, have been quite positive. We're pleased to see that development, both in terms of consumer takeaway, as well as in terms of our ability to get more features and displays against that business. The last thing I would say, and it relates to one of the prior questions, is the price pack architecture. We briefly touched on that, but having the opportunity for the consumer who is financially constrained to find one of our iconic brands at a price point which they can afford at the current time is an important part of why price pack architecture is one of our key focuses now and will be going forward. Garth Hankinson: Yeah, as it relates to the margin profile, just to reiterate what we talked about earlier, just around the first half versus the second half. The second half always being a lower margin profile as it relates to lower volume through our breweries, as well as that's when we do our normal maintenance CAPEX. Operator: Thank you. As a reminder, if you'd like to be placed into question two, please press star one on your telephone keypad. In the interest of time, we ask that you please ask one question. Our first question today is coming from Kevin Grundy. Our next question, I should say, is coming from Kevin Grundy from BNP Paribas. Your line is now live. Kevin Grundy: Great. Morning. Thanks for the question, guys. I wanted to ask about the suitability of the 39% to 40% beer operating margin target. I think there's a lot of questions among investors about that and the sustainability of it. Very clear, I guess, in terms of positioning of management, in terms of it's cyclical and volumes are going to come back. What if they don't? What if volumes stay down low single digits? A couple of important points of context here. I think for a really long time, as you guys are well aware, volumes are outstanding, up high single digits. There's a certain degree of operating leverage in the business that you're able to sustain the 39% to 40%, but now it's down and potentially it could stay down. I think there was a worry over a long period of time, also as you guys are well aware, it was a constraint on the multiple, and that is the weak volume trends in the category, which had been in decline for the better part of, you know, 15 years. There was always a worry that you were going to get this mean reversion for Constellation Brands. How long can they continue to gain share? It's all kind of a big wind-up for here we are, category volumes are down mid-single, you guys are doing better than that, and the pace of share gains have slowed. What is the, what's, how plausible is it that you can sustain that level of margin if you're going to be facing year after year operating deleverage of volumes down sort of low single digits? Sorry for all of that, but I appreciate your thoughts. Thank you very much. Garth Hankinson: Thanks for the question. Look, 39% to 40% operating margins have been best in class, and even where we're going to be this year with some deleveraging, we'll still have best in class operating margins in all beverage alcohol, certainly within beer. As we think about the impact going beyond FY2026, I think we've been really clear that we're not in a position where we want to give guidance beyond FY2026 at this point. We want to see how the macroeconomic and socioeconomic conditions play out and then see how the consumer responds to that. Then we'll have a better sense for where margins go from here. Obviously, there are multiple things that will go into our margin profile, inclusive of depreciation that comes online with some of the investments that we've made and will make. As I mentioned earlier, we're looking at ways to, or we're reviewing our footprint, both our current footprint and our expected footprint, to see what the opportunities are there. We have a robust savings agenda every year that helps margins and certainly offsets things like inflation. We do think that we'll return to growth and that will be beneficial for margins going forward. There are a lot of things that the normal headwinds and the normal tailwinds should be available to us going forward. We'll provide more color on where we think margins are as we go through this year and again see how the environment plays out and how the consumer responds. Operator: Thank you. Next question is coming from Chris Pitcher from Rothschild & Co. Redburn. Your line is now live. Chris Pitcher: Thank you very much. Can I ask a question about the wine and spirits in the second half? It's obviously quite difficult trying to compare against a base that's disrupted by the divestments. Q3 last year was a big destocking quarter. Based on the positive depletions in the current quarter, is it a fair assumption to assume that inventories are at a good level at your wholesalers? Therefore, you could see quite a benefit in the third quarter just from a normalization of destocking. Thank you. Bill Newlands: Yeah, our inventory levels in our wine and spirits business are in quite a good spot. Part of what you heard Garth speak of earlier, which was some of the distributor alignment after the divestiture, part of what we focused our attention on is to getting and making sure that our inventory levels of our ongoing business were in the right spot, and they are. Again, our focus at this point, I don't think inventory is going to be an issue going forward in the least, but we're very focused on continuing to win in the market as we have for the last several months based on the strong performance of some of our critical brands like The Prisoner, Kim Crawford, Ruffino, and Meiomi in particular. That's really going to be the continuing focus of that business, as we said it would be at the beginning of this fiscal year. Operator: Thank you. Next question is coming from Robert Moskow from TD Cowen. Your line is now live. Victor: Hi, good morning. This is Victor on for Rob Moskow. I want to ask about the feasibility of the 1-2% pricing algo. Given the macro pressures around the Hispanic consumer, are these price increases more in low Hispanic markets? Also, on the negative mix impact from the prepared remarks, could you give some more color on what this was from? Could this be from, you know, Corona Familiar's strong demand in the brand's larger model size? Bill Newlands: Our expectation around pricing is what we have always done, which is we look at it SKU by SKU, market by market, and we still expect 1 to 2% to be what our overall delivery will be over the course of this fiscal year. A lot of that goes right back to what we've said before, which is there are pockets of opportunity, and we go after those pockets of opportunity. I think a great example, and I'd be remiss if I didn't point this out, that as Garth mentioned earlier, Modelo Especial remains the number one top-selling beer by dollars in the U.S. by track channels. It's at a roughly 10% share, and that's two full share points ahead of the next largest brand. Some of that also translates over into the on-premise. Excuse me, the on-premise has gone from number five to number two in terms of draft. Those kinds of things where you have that strong brand equity allow you to look specifically on a market-by-market basis and get to that 1 to 2% algorithm that we've consistently talked about. As you would expect, we always look at is the market available to us, and we will do the right thing on a market-by-market basis no matter what, but we still believe that 1 to 2% is sort of the algorithm that we expect to remain within. Operator: Thank you. Next question is coming from Chris Barnes from Deutsche Bank. Your line is now live. Chris Barnes: Hi, thanks for the question. I just wanted to follow up on your depletions expectations for the second half. I know I appreciate the 1% to 2% comment on pricing, but that and your expectation for shipments and depletions in absolute cases to track closely, that seems to imply a pretty material step down in the second half in depletions growth. Could you maybe unpack the drivers there? Thanks. Bill Newlands: Yeah, we don't give forward expectations on a quarter-by-quarter basis, but here's what we'd say. We've seen unprecedented volatility, and there's very mixed results. One of the things that we track very carefully is zip code data, and the results that you are seeing in high Hispanic zip code areas are significantly worse than what you see in the general market. We've seen some positive uptick in some of our top five states within the general market where those zip codes, where the general market zip codes are a higher proportion of the overall consumer base. We're cautiously, and I would stress that word again, cautiously optimistic that we've hit the bottom here, but the volatility, as I said, is unprecedented, and the results are very mixed. The state of California has been the single biggest problem as some of those 4,000 calorie jobs, as we often talk of, haven't materialized to the rate that we would have expected. Part of that question is going to be, will some of that construction opportunities reinvigorate? Because that's good for the beer business, and that's particularly good for us given our strength in that particular market. All in, we don't expect a radical change, nor are we projected, based on our overall guidance, a radical change in the back half of the year, but we're going to watch that very closely and see if there's any improvement in the volatility that's been going on in the overall marketplace over the last several months. Operator: Thank you. We reached the end of our question and answer session, and that does conclude today's question and answer session and our telecast. We disconnect the line at this time and have a wonderful day. We thank you for your participation today.

Operator: Greetings, and welcome to the Constellation Brands Q1 Fiscal Year 2026 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Joseph Suarez, Vice President, Investor Relations. Please go ahead, sir. Joseph Suarez: Thank you, Kevin. Good morning all, and welcome to Constellation Brands Q1 Fiscal '26 Conference Call. I'm here this morning with Bill Newlands, our CEO; Garth Hankinson, our CFO, and Blair Veenema, our new Vice President of Investor Relations, who will assume leadership of the function after today. Blair brings great expertise to the role. He began his career as a buy-side equity analyst and has worked across our corporate development, treasury and beer commercial finance teams for the last 10 years. I will work closely with Blair over the coming weeks to ensure a seamless transition of the function. We trust you had the opportunity to review the news release, CEO and CFO commentary, accompanying quarterly slides and a recently updated annual brand appendix slides made available in the Investors section of our company's website, www.cbrands.com. On that note, as a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on today's call are included in the news release and website and we encourage you to also refer to the news release and Constellation's SEC filings for risk factors that may impact forward-looking statements made on this call. Before turning the call over to Bill and Garth, please keep in mind that as usual, answers provided today will be referencing comparable results unless otherwise specified. Lastly, in line with prior quarters, I would ask that you limit yourselves to one question per person, which will help us end our call on time. Thanks in advance, and over to you for questions. Operator: [Operator Instructions] Our first question today is coming from Dara Mohsenian from Morgan Stanley. Dara Warren Mohsenian: So just wanted to discuss your confidence in the unchanged full year Beer revenue growth outlook as well as margin guidance. So we've obviously seen some industry weakness ramp up in May and June. Your depletion decline in fiscal Q1 was similar to Q4 if you strip out one less day. I understand that. But presumably, some of this industry pressure ramped up towards the end of the quarter in June, at least in the tracked channel data. So can you just discuss confidence in your Beer volume growth outlook? And at some point, it implies you move back to depletion growth. Maybe just give us some more context on a quarterly basis when we should start to see that. And then also just on the margin side, with incremental aluminum pressure with the higher tariffs, can you talk about what sort of the offset is to allow you to still deliver profitability on a full year basis on the beer side in line with what you were expecting previously? William A. Newlands: Sure. Dara, why don't I start and Garth will come in with the margin question. I think it's important to point out that the quarter was as we expected. We saw a significant amount of consumer concern that has continued from the past quarters into this quarter, but this quarter was as we expected. Recall, this is going against the strongest quarter that we had last year. Q1 was what I would describe as a normal quarter for us. And as you pointed out, there was one less selling day in the quarter. I think the important thing to point out is sequential improvement is required for us to accomplish our guidance, but it's not, not predicated on significant consumer change. We're going against much easier comps as we head into the summer and scanner data. You may recall that in July of last year was when things started to decelerate both for us and for the overall industry. So we're going against easier comps as we progress into the summer months. Garth, do you want to touch on the margin point? Garth Hankinson: Yes. I'll touch on the margin point. But before I touch on the margin point, again, as Bill said, we feel confident with our outlook for the year, which is why we affirm guidance, and we haven't seen any changes in consumer behavior. That being said, there are still some macroeconomic factors, if you will, that we continue to monitor, and there continues to be some uncertainty in the macro backdrop. We've seen from our banking partners and from the Fed, some reductions in expectations around GDP growth as well as some softening in expectations with inflation, unemployment, and interest rates. That being said, there's a lot of guesswork, I think, more so in this year's forecast as it relates to things like the impact of potential tariffs or the potential impact of tariffs and the potential impact of unemployment of government-related layoffs. So again, just a fair amount of uncertainty as we go through the year. On the margin front, we feel good about our ability to deliver margins in line with what we laid out in April, specifically to the incremental tariff that went into effect in June. To be clear, that did not impact our Q1. Going forward, we think that the impact of that is going to be roughly $20 million. As a reminder, what was announced earlier in the year was an impact of about $30 million. It's obviously less for us given that it's one quarter into the year or the incremental is less for us because we're one quarter into the year. And from a seasonality perspective, first quarter is the highest quarter. Volume-wise, we don't expect that we're going to be able to fully offset this incremental tariff. So that will be about a 20 basis point hit, but we still believe that we can deliver margins in line with what we outlined in April. Operator: Our next question today is coming from Nik Modi from RBC. Sunil Harshad Modi: Bill, I know this might be a hard question to answer, but just I know you guys are doing a lot of work regarding the Hispanic consumer. It almost feels like it's getting a bit worse in terms of just -- at least from the headlines of the rates and kind of where they're targeting consumers in normal places of shopping. I'm just curious like, there's got to be a breaking point at some point. And obviously, this is a big driver that is weighing on your business. I'm curious if you have any perspective on like how long do you think this might go on? And again, I know this is a hard question to answer. Do you have any perspective from the administration in terms of when some of these rates will start to calm down? Like any perspective around that, I think, would be helpful. William A. Newlands: Sure. Thanks, Nik. As you know, you're right, this is very hard to call as to what the consumer reaction is going to be going forward. I think the important part that we continue to look at is, first of all, our loyalty is very strong and remains very strong with the Hispanic consumer base. Our loyalty is increasing in the general market, and we are continuing to invest against our business to support the consumer as they progress down this path. Importantly, our brand health measures remain as strong as they ever have. We'd be -- we'd be hard pressed to tell you when you see a fair amount of change. Both Hispanic and non-Hispanic consumers are concerned about inflation and about cost structure. But I also would point out that the percentage of alcohol in the basket has remained constant even though the basket has gotten smaller relative to what consumers are doing with consumer goods. So our focus has been on control the controllables. We have seen high single-digit share gains in the shelf, our buy rates. While visits are down, spend is up when people visit and when they actually go to the stores. NPD continues to be an important part of what we do. We're pleased with the development of Sunbrew. It's ahead of what we had expected. And as I said earlier, we continue to invest against the business. So our focus continues to be monitored carefully where the consumer is and control the controllables, do everything we can possibly do. So as the consumer hopefully returns in the near term to more normal behavior, we're there and ready to take advantage of just that. Operator: Our next question is coming from Lauren Lieberman from Barclays. Lauren Rae Lieberman: I just want to talk a little bit about marketing. It was interesting to see stronger marketing in the quarter. So I was curious if you could talk a little bit about marketing cadence this year versus last. And then also in that standpoint, it feels like not so much from a pricing standpoint, but from a marketing standpoint, the competitive landscape has picked up, and you've got Mic Ultra that's been a fast- growing brand for some time, the only other fast-growing brands alongside Modelo, has really picked up its activity. And I think picked up, it seems sort of the target market they're going after. So I just was curious if you could talk a little bit about kind of brand competitiveness, your marketing efforts, not just quantum and timing, but also kind of thoughts around any changes or differences in targeting and what you're seeing in the competitive landscape? William A. Newlands: Yes, you bet. So I think it's important to point out that because of seasonality heading into the summer, Q1 is always slightly higher in terms of our marketing investment versus the rest of the quarters. But I think it's also important to point out, Modelo and Corona are the #1 and the #2 share of voice within the Beer sector for marketing. We continue to invest against our brands to build long-term success for those brands. And we're investing in places that we think are high impact: football, soccer, Major League Baseball, things that are live, things that are action-oriented and things that tend to be beer occasions. So we're going to continue to invest against our business. Our fundamental belief is, as I said on the prior question, our brand health metrics are very strong. Our intent is to keep those metrics as strong as they are, if not to improve those. And part of the way we will do that is to continue to invest against the consumer. So as the consumer begins to revert to more normal behavior, whenever that occurs, we're going to be in a position to win. Operator: Our next question today is coming from Chris Carey from Wells Fargo Securities. Christopher Michael Carey: So I was thinking about the investor presentation, at the Investor Day, and there's a lot of pride in the fact that the portfolio is so focused and you're gaining share in the category behind such a focused portfolio. And I think when you look across some of your peer set, there's actually been an attempt to continue to diversify the portfolio to perhaps hedge against some of these situations, if the floor, the slowing growth or market share loss, it's offset by something else, right? You've seen that with some of your competitors. Does this moment in time, give you a bit more credence to think about maybe investing or diversifying the portfolio, however significant that may be in the coming years to give yourself a bit more diversification against such events? And then within that, can you just talk about how elevated maybe Pacifico will become now because it's been such a reliable growth driver. Can you accelerate that growth even more? So just some thoughts there would be helpful. William A. Newlands: Yes, you bet. Well, first of all, I think it's important -- if you think about what has changed versus the Investor Day, a lot of things happen. Non-alc didn't exist at that point in time. Today, it's the #2 share gainer in a growth category, the non-Alcohol sector. Oro didn't exist. You probably heard that we are adjusting our Oro pricing to go after high-end light beer, where we see competitive opportunity for us to succeed. We introduced Sunbrew this year, which is ahead of our plan, goes after a consumer who's interested in flavor. I've said on prior calls, we're very pleased with the fact that our share of sales in LDA 21- to 25-year-old consumers is twice the average of the sector. So we're continuing to bring in new, younger consumers into the equation. [indiscernible], one of the best -- single best [indiscernible] that we have did not exist when we had Investor Day. So all of those things, I would argue, are part of our innovation agenda. As we've said, we can see between 20% and 40% of our growth profile in any year, reflecting from new products, and we would expect this year not to be any different along that line, but we're continuing to be focused on how we can win more consumers on more occasions. Relative to your question on Pacifico, obviously, Pacifico continues to be very, very strong. But what's exciting to us is, despite the fact that Pacifico is the #2 brand now in L.A., where it's obviously a huge brand, 50% of the growth profile that's occurring on Pacifico is coming from outside of California. So you're starting to see significant increase and growth of that brand around the country, and we expect to put some fuel on the fire, if you will, around that brand. We think it's a great opportunity. It's demographic profile is somewhat different from our other brands. And we think that's going to be an important growth driver and an important share gainer in terms of shelf positions for us as we move forward. Operator: [Operator Instructions] Our next question is coming from Kaumil Gajrawala from Jefferies. Kaumil S. Gajrawala: I guess I'm going to follow Nik's lead with a tough question, which is -- let's just assume things get better from a socioeconomic perspective. How do we know that behavior will go back to where it was. And I kind of asked in the context of, it does seem we're learning now and that COVID really changed the way the consumer is behaving in general across a series of things, but especially across beer. And could this be sort of the equivalent of a COVID moment that even if things start to open up a bit that maybe the behavior doesn't go back to where it was? William A. Newlands: Yes, that's an interesting question. I think the important part of that for us to all keep in mind is, especially with our Hispanic consumer, which reflects roughly half our business, that consumer is very interested in beer. What has occurred is that occasions on which beer is consumed have decreased because of concerns of the socioeconomic area that you mentioned. So when you look at the fact that consumers are not going out to eat as much as they had, they're having less social occasions at home. It doesn't change their interest in consumption of beer. It simply has been that those occasions have been decreased of when that occurs. So I think you're going to easily see it revert to a more normal scenario as the macroeconomic scenario comes back to a more normal environment. Operator: Your next question today is coming from Peter Galbo from Bank of America. Peter Thomas Galbo: I wanted to go back to maybe Dara's question on just the Beer gross margins. And actually, there was probably some favorability or upside to what we thought in the quarter. Garth, I think in your prepared remarks, you talked about kind of a $40 million tailwind on kind of operational improvements. I'm just wondering how much of that as well is maybe some favorability on the peso that you guys locked in kind of at a more favorable value? And maybe how we should think about that on the go forward in the back half of this year or even into early next year as the dollar has weakened and peso has gotten stronger relative? Any context there would be helpful. Garth Hankinson: No. No, thanks for the question, right? So just -- I mean, as you know, we have a pretty robust hedging policy. It's a hedging policy that starts sort of 3 years in advance of any one fiscal year. So we're pretty good at this point to be able to manage the impact and smooth the impact of any currency and for that matter, commodity risk from year-to-year. As we entered this year, on the peso front, we were hedged in the low 70% range, which is a little bit higher than what we normally target to start the fiscal year. As we saw some favorability earlier in the year with the peso, we did layer in incremental hedges for this year. And for this year, now we're up hedged for the peso over 80-ish percent. And then we laid incremental hedges for that matter for FY '27 and FY '28 to take advantage of that favorability. So as we sit here looking at the balance of the year, there's still potentially a little bit of opportunity across the whole basket of currency and commodities. But specific to the peso, we feel the peso is probably a little bit overvalued right now due to the dedollarization. We'll continue to look for opportunities to take advantage of any changes that go in our favor there, but the impact is certainly not as material as it was earlier in the year, largely due to the hedging -- the incremental hedging we did through the quarter. Operator: Next question is coming from Andrea Teixeira from JPMorgan. Andrea Faria Teixeira: I was hoping to see -- I mean, I think the important questions were asked. But just in terms of like your new distribution, I believe you quoted a good amount of high single digits into the summer. So I was hoping to see if there is any -- obviously, with the conditions that the industry is in right now, but just to understand how the velocity has been so far and the level of incrementality you're seeing within the baseline. Of course, we know what the industry has been facing and the depletions on the negative front. But just thinking how you're positioning as we go into the summer season? And how does that velocity is behaving from now? William A. Newlands: Sure. So distribution is going to continue to be a critical part for us. And fortunately, as the #1 share gainer in the category, we are in a position to continue to gain distribution and shelf positions. I think that's important for us as you see strong growth profiles for things like Pacifico, which we talked about a moment ago and Sunbrew and things that really are demanding more shelf positioned because of their strong start in the marketplace. So we believe that that's going to continue to be an important part of our growth profile as we go forward, is broadening that distribution and our team is very focused on that. It goes right back to what I said before, which is control the controllables. Our loyalty remains strong. We are seeing continuing improvement in the loyalty that we see with our Hispanic consumer, and it's growing in the general market. That speaks to the long-term benefit against your velocity question, and I think that will be an important part. Another thing that I would point out where we're spending a lot of time is in price pack architecture. It's an area where, as the consumer may be more concerned about inflationary trends, it would be important to have the right pack set at the right price points so that no matter what the consumer has available to them to spend, we have a product available to them for that quantum that they have available to them. So that -- all of those things are critical elements about what we call the controllables that we're going to be focusing on as the year progresses. Operator: Next question is coming from Filippo Falorni from Citi. Filippo Falorni: I wanted to get your perspective on the pricing environment in Beer. Obviously, the category is under a lot of pressure across the board. Are you seeing -- how are you seeing the pricing implemented this year being taken in the market? And are you seeing any competitors maybe relying a little bit more on promotions to try to accelerate the volume in the category? Garth Hankinson: I think there is some additional price promotion that's gone on in the marketplace. I'll use our example. We have addressed our oral pricing starting this past month going after the high-end light beer consumer, where we feel there's a great opportunity. So we have made that adjustment in our own business in the interest of building additional share in the high-end light sector of the business. So I think you're always going to see a bit more promotional activity at a time when there's economic concerns. So that doesn't surprise us. But again, this goes right back to what we started with, which is our brands are strong and the loyalty is strong, and that at the end of the day, is going to win the date. Operator: Next question today is coming from Bonnie Herzog from Goldman Sachs. Bonnie Lee Herzog: So I actually wanted to ask about the California wildfires that happened last year, and I guess the expected rebuild. Could you give us some color on what is happening with the rebuild? And what type of growth or upside you might be expecting from this considering how important this market is for you? And then maybe clarify for us that the rebuild potential upside is factored into your guidance? Garth Hankinson: Sure. As many people know, and we've seen this at various what I will call, external factors, hurricanes in the East or fires in the West. Any time you see that sort of thing, there's a short-term hit and a somewhat long-term upside because as you, a, clean up and then rebuild, you're creating great job opportunities that tend to include interesting beer moments. So I think as we are starting into that process, and as you know, it takes a while to start the process of rebuilding with permits and so forth, that will likely be a bit of a tailwind. The amount of that tailwind remains to be seen as a lot of it depends on permits and development and how much construction capability exists in the marketplace. But you are correct, that ultimately will be a bit of a tailwind. And yes, that is built into our expectations of our guidance going forward. Joseph Suarez: That being said, Bonnie, I think it's important to point out that California has experienced some consumer challenges from the macro environment as it relates to things like unemployment, particularly for the Hispanic consumer and even construction there, where we expect that there will be some benefits. As Bill just noted before, construction plan remains down year-over-year in California. So again, should be some benefit longer term, but short term, still some macro headwinds in the state. Operator: We have reached the end of our question-and-answer session. And ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Operator: Greetings, and welcome to the Constellation Brands Q4 Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Joseph Suarez, Vice President, Investor Relations. Please go ahead, sir. Joseph Suarez: Thank you, Kevin. Good morning, all, and welcome to Constellation Brands Q4 and full year fiscal ‘25 conference call. I'm here this morning with Bill Newlands, our CEO, and Garth Hankinson, our CFO. We trust that you had the opportunity to review the news release, CEO, and CFO commentary and accompanying slides made available yesterday evening in the investors section of our company's website, www.cbrands.com. As we have received a couple questions regarding certain figures contained in our slides, please note that we expect our beer net sales growth rate for fiscal ‘26 to be between 0% to 3% and for fiscal ‘27 and ‘28 to be 2% to 4%. And our operating income growth rate for fiscal ‘26 is expected to be between 0% to 2% percent and for fiscal ‘27 to ‘28 we expect operating margins to be approximately 39% to 40%. On that note, as a reminder, reconciliations between the most directly comparable GAAP measures and non-GAAP financial measures discussed on this call are included in the news release and website. And we encourage you to also refer to the news release and Constellation’s SEC filings for risk factors that may impact forward-looking statements made on this call. Before turning the call over to Bill and Garth, please keep in mind that, as usual, answers provided today will be referencing comparable results, unless otherwise specified, and that any references to expectations for fiscal ’26 to fiscal ’28 reflect the anticipated impact of the tariffs announced by the US government on April 2nd and the Canadian government on March 4th of this year, inclusive of the delay in the effectiveness of certain tariffs announced by the US government yesterday which will particularly impact the Wine and Spirits Business. Lastly, in line with prior quarters, I would ask that you limit yourselves to one question per person, which will help us to end our call on time. Thanks in advance, and now here is Bill. Bill Newlands: Thanks, Joe, and welcome, everyone, to our Q4 and full year fiscal ‘25 call. As usual, I will outline a few overarching highlights, but we will then move immediately to Q&A as our broader commentary was provided to you yesterday. So, let's get going. In a tough socioeconomic environment, we are taking decisive actions designed to continue to support our industry-leading Beer Business, reset our cost base, and redefine our portfolio. More specifically, first, in fiscal ‘25, despite a softer consumer demand backdrop largely driven by what we believe to be non-structural socioeconomic factors, we continue to deliver enterprise net sales growth, realize substantial comparable operating margin improvement, and achieve double-digit comparable EPS growth. Second, looking ahead, while we expect these non-structural socioeconomic factors affecting consumer demand to gradually stabilize and subside, we remain focused on driving distribution gains, on launching disciplined innovation, and on deploying incremental marketing investments to support the growth of our Beer Business, all while continuing to deliver best-in-class operating margins. Third, in addition, we expect significant improvements in the performance of our Wine and Spirits Business beyond fiscal ‘26, following the anticipated closing of the 2025 Wine Divestitures Transaction that is primarily centered around the sale of the remaining mainstream wine brands in that portfolio as well as the implementation of associated restructuring actions expected to yield over $200 million in net annualized cost savings across the enterprise by fiscal ‘28. Fourth, against that backdrop, we are targeting to deliver approximately $9 billion in operating cash flow from fiscal ‘26 to ‘28, and approximately $6 billion in free cash flow as we continue to invest primarily in the modular development of our third brewery, Veracruz, and modular additions at our existing facilities in Mexico. And fifth, in line with this strong cash flow generation and having achieved our comparable net leverage ratio target in fiscal ‘25, we remain committed to a disciplined and balanced capital deployment framework, including our 30% dividend payout ratio, and executing share repurchases against our new three-year $4 billion authorization. And with that, Garth and I will be happy to take your questions. Operator: [Operator Instructions] Our first question is coming from Lauren Lieberman from Barclays. Your line is now live. Lauren Lieberman: Hi, great. Good morning and thanks a lot for the question. I wanted to know if you could comment more specifically on tariffs. Is the Beer Business currently USMCA certified so we can get some visibility on what is baked in terms of tariffs with regard to Mexico? And also, what else is baked in terms of aluminum cans and so on? So more visibility there would be really helpful. And then, I was also just curious on the longer-term forecast around beer and the notion of socioeconomic non-structural dynamics. But how are you thinking about beer industry growth over this projection timeline? Thanks. Bill Newlands: Sure, why don't I start with the first part of the question? We have been USMCA compliant since it was implemented several years ago and remain USMCA compliant today. Garth Hankinson: In addition to that, Lauren, the guidance that we provided does include the impact for all tariffs announced by the U.S. government on April 2nd and by the Canadian government on March 4th. For our Beer Business, this includes the impact on our aluminum cans. And for our Wine Business, this includes the impact for our brands coming out of New Zealand and Italy into the U.S. and for our brands from the U.S. into Canada. Bill Newlands: Relative to the longer-range perspective on beer, there's been obviously a lot of what we see as near-term headwinds, but we think that those over time, particularly as the Hispanic consumer who's been particularly challenged, gets back to more sort of normal operating procedure. Operator: Thank you. Next question is coming from Nik Modi from RBC Capital Markets. Your line is now live. Nik Modi: Yeah, thank you. Good morning, everyone. Bill, maybe if I could just kind of piggyback off Lauren's question on the long-term beer outlook. I get the fact that things are really kind of choppy right now, but the cut in the guide just kind of over the next couple of years seemed a bit extreme relative to what you guys have been doing, even with the slowing down that we've been seeing, that I think we can all agree some of it is very temporary. So when I speak to the trade, it's pretty clear nothing has really changed on an underlying basis with the brands, the momentum, kind of how retailers are looking to space your portfolio in a bigger sense, greater manner. So just wanted to kind of get your philosophy on the range of being down, this up 2% to 4%, which is versus the 7% to 9% and kind of how you're thinking about that. I mean, are you just kind of assuming things to stay the way they are? And if there's upside, great. So, any context on that would be really, really helpful. Bill Newlands: Sure. Well, let's start with the most important thing, Nik. And today's Nik's birthday, so, happy birthday, Nik. Now getting on to the main point. Most important thing, as we look at it, relative to the medium term, is our brand health. And fortunately, all of our brand health metrics remain extremely strong. We're very focused on what we can control, and that's distribution. It's focused innovation. It's making sure that our execution is top-notch. You noted we gained over 10% in share of space in the resets that occurred last year, so that remains a positive factor. It's very difficult to know exactly how long some of these socioeconomic issues are going to continue. Certainly, we know that the Hispanic consumer is particularly concerned about a number of issues, and we would certainly expect some improvement as those consumers become more comfortable and less concerned about the many issues that follow them. We don't have an exact answer to when that is going to moderate. And I think it's important to note that the guidance that we have provided reflects the fact that there are a lot of unknowns today, including things like tariffs, but also the impact that we're seeing with the Hispanic consumer. Until we get a more definitive answer to some of those questions, it's a tough answer to give. Fortunately, that consumer, the Hispanic consumer, continues to show extraordinarily loyalty to our brands. And over the long-term, that will moderate and continue to allow us to gain share as we have for the last several years. Garth Hankinson: And, Nik, let me just add a couple of the actual brand health stats that Bill referenced. We've actually seen some pretty significant increases in aided awareness and consideration from Modelo, Corona, and Pacifico, which is in line with what we would expect from the media investment that we put in place this last year. All brands are holding steady on measures of popularity across all adults, Hispanic and Gen Z. Pacifico is up statistically significantly in California and all our brands are holding steady on the other metrics that we track, including is this a brand I love, is it a brand everyone likes, is it a good value, is it a brand with heritage and net favorability. Operator: Thank you. Next question is coming from Bonnie Herzog from Goldman Sachs. Your line is now live. Bonnie Herzog: All right. Thank you. Good morning. I just wanted to ask a quick follow-up on -- in the context of your cut to your medium-term algo, what are you assuming for the beer category growth or I guess declines over the next few years? And then I wanted to ask about margins, beer margins. Could you maybe walk through the different puts and takes that are going to allow you to deliver your best-in-class beer margins of 39% to 40% over the next few years despite, I guess, a considerable expected slowdown in volume and some tariff risks? I mean, you mentioned some cost cutting, so could you give us some more color on that and possibly quantify? Thank you. Bill Newlands: I think Slide 18 is going to help you on some of those broad answers, but our view is, over the course of the medium-term, the beer industry overall will likely go back to what it has done over the last several years, which is roughly flat to down 2%, somewhere in that range. And as we've said on prior calls, we've seen a significant delta between whatever the beer industry is and our performance against it, where we have gained significant share. We expect that that overall approach is going to continue and that we'll get back to a more normal, I'll call it normal trajectory into the medium-term. As I spoke on a couple of the prior questions, how quickly that comes around will largely depend on what consumer sentiment is as we move forward. Garth Hankinson: Yeah, and then, Bonnie, on margins, I apologize, this is probably a bit of a boring story, because I think we've said it a few times before, nothing's really changed. First of all, we're going to manage our footprint in the modular fashion that we've referenced previously. So we're going to limit the impact of depreciation and overhead absorption issues. In addition to that, we'll have incremental volume growth. We'll maintain our 1% to 2% pricing algorithm. And certainly, we'll continue to -- on with our cost savings initiatives. Obviously, those tailwinds will be offset on a year-to-year basis by inflation and tariffs. But net-net, when we put all that together, we think we can continue to deliver best-in-class margins at 39% to 40%. Operator: Thank you. Next question is coming from Rob Ottenstein from Evercore ISI. Your line is now live. Rob Ottenstein: Great. Thank you very much. I just want to make sure I get this as crystal clear as possible. I'm wondering if you can just kind of go through again how you're thinking about free cash flow deployment and given the fact that you've shrunk the Wine and Spirits Business or repositioned it and given the fact that at least over the next couple years, you expect less growth from the beer side of the business, you're reducing CapEx. Are you today, and kind of going forward, more open to larger acquisitions? Are you spending more time on acquisitions, given the increased cash flow? So, I'd love to get your thoughts on that. I know you've re-upped the authorization on the share buyback. Tied to that, is that a strong commitment that you will buy back? I think it was $4 billion worth of stock over the next three years, just trying to get a sense of the priorities there and what is kind of guidance versus actual commitments along those lines? Thank you. Garth Hankinson: Well, thanks for the question, Robert. And on the one hand, this will not be another boring answer because I think there’s a lot of consistency with what we've said in the past, but actually I think it's pretty exciting what we're going to be doing here. I mean, as we outlined, through FY ‘28, we're going to generate $9 billion of operating cash flow and $6 billion of free cash flow. Our capital allocation priorities don't change. We're committed to being -- we're committed to achieving three times leverage. We're there now. We're actually a little bit below there now. We're committed to returning capital to shareholders through dividends and we'll maintain our approximately 30% dividend payout as we go forward. And then you referenced the new authorization for $4 billion in share repurchases that we received from our board yesterday. This is actually, I think, very exciting. I mean, not only is the $4 billion share repurchase authorization reflective of our discipline around capital allocation and share of purchases more specifically, but it's also reflective of the fact that we think that we're undervalued. Our share price is undervalued, remains undervalued. And we're going to execute on that share authorization as we have this past fiscal year where we'll be disciplined on a quarter-to-quarter basis, but we will also have the ability to be opportunistic as we see dislocations in our share price. And then as we round out capital allocation, we're going to continue to invest in our Beer Business, as we outlined in the materials yesterday, $2 billion over the next few years. And M&A remains the last of our priorities, mainly around smaller plug-in opportunities. Operator: Thank you. Next question is coming from Chris Carey from Wells Fargo Securities. Your line is now live. Chris Carey: Hi, good morning, everyone. Garth Hankinson: Hey, Chris. Chris Carey: So, Garth, can you just talk about the main drivers and considerations for gross margins going into fiscal ‘26? I fully appreciate that you had a lot of detail in the slides, but I'm really trying to parse out the impact of tariffs on this model, whether that's just the aluminum cans relative to everything else. You also perhaps have a quite a notable currency tailwind in fiscal ‘26 that may not help you in go-forward years. And so I'm really just trying to understand the puts and takes, specifically the impact of tariffs relative to everything else on the model in fiscal ‘26 and whether there are some nuances like currency that won't repeat, so that we can have a better idea of how to layer this in going into fiscal ‘27 and fiscal ’28? Garth Hankinson: Yeah, so look, let me do my best there, Chris. And if we need to follow up, we can follow up. But the guidance that we provided yesterday, as we said, includes the impact of tariffs for our Beer Business. That is the impact on aluminum cans. As it relates to currency, as you know, we've talked about this multiple times, that we have a multi-year layered approach to how we manage our currency. As we entered in FY ‘26, we're above 70% hedged and we've seen some actually dislocations in the U.S. peso right here. I shouldn't say some dislocations, but some weakness and we've taken opportunities to layer in some incremental hedges both for this year and future years. So as always, we look to sort of -- we look to manage that on a year-to-year basis so that the impact isn't that material from a year-to-year perspective. We try to smooth that as best we can. Operator: Thank you. Next question today is coming from Nadine Sarwat from Bernstein. Your line is now live. Nadine Sarwat: Thank you, guys. I appreciate all the incremental color that was provided in the prepared remarks in the presentation. Two questions for me. You called out a tough socioeconomic environment in your prepared remarks. Can you explain exactly what you're assuming in terms of that socioeconomic environment for the next three years? Are you assuming the current situation remains status quo or are you making some improvement in the back of that? And then secondly, on the weak depletion numbers and especially Modelo, appreciate the commentary that you provided. Could you pull apart the factors onto what's driving that, maybe what has changed in a little more detail? I don't know if a rank order of magnitude or trying to quantify these in any way possible, and maybe you have any incremental consumer insight on consumer type, pack type, channel, any incremental color would be helpful. Thank you. Bill Newlands: Sure. So, let's talk first about the Hispanic consumer because I think this is an important element. As you would expect, we do a fair amount of research around this consumer given that they represent roughly 50% of our overall Beer Business. And the fact is, a lot of consumers in the Hispanic community are concerned right now. Two-thirds of them are concerned about higher prices on things like food, gas, and other essentials. Over half are concerned relative to immigration issues and how those impact. A number of them are concerned about job losses in industries that have a high Latino employment base. And what does that do? That has tended to mean that the consumer has pulled back on spending on a number of categories. The single biggest one, interestingly, is restaurants. But a lot of other consumer goods, clothing, home choice, things to do, travel. Beer is quite a ways down the list, but it's certainly on the list because things like social gatherings, an area where the Hispanic consumer often consumes beer, are declining today as part of these overarching concerns that they have. Therefore, all of that has had impact on our business. As you know, Modelo is over 50% Hispanic in terms of its demographic base. So, this decline in efforts to go to restaurants, to have social gatherings, things that are very much beer occasions have softened in the more recent term. And it's going to be key to watch as to how that impact continues or doesn't continue as we go forward. Net-net, it's non-structural. This is not -- our brands and our brand health continues to be top-notch. We continue to focus on what we can win at, winning the shelf, winning execution, continuing to bring interesting innovation to the table that allows us to continue to outperform the overall category. But as you would expect, we're going to need and want to see some improvement in the consumer brand health before we're able to correctly project how long some of these challenges are going to last. Garth, anything you want to add? Garth Hankinson: Yeah, just on some of the macro data points. And I'll give you sort of how we're thinking about that for the forecast period that we provided details on last night. We're not expecting any material improvement over this forecast period. Some of the macro trends that we're seeing and that we're tracking, our unemployment, and obviously unemployment, has started to stabilize across the board. But we have seen weakness in those 4,000-calorie job sectors that have a higher impact on beer consumption. Year-over-year real disposable personal income reached a two-year low in January and stayed low in February. Consumer sediment --sentiment rather, reached a 2.5 year low in March, and long-term expectations from consumers isn't expected to change anytime soon. We've seen inflation rather -- the expectations for inflation to not get as -- to not rebound quite as quickly as we had expected. And the outlook for GDP growth now is a little bit more muted than it was. So we're not expecting any big improvements in that. As we go through calendar year 2025, we may see some of that moderate a bit and into '26, so maybe some marginal improvement. But for the forecast period, we're not expecting any material improvement in the macroeconomic conditions. Operator: Thank you. Next question today is coming from Peter Grom from UBS. Your line is now live. Peter Grom: Thanks, operator, and good morning, everyone. So I was hoping to talk more in near term and just kind of get some perspective and just in terms of what's happening in terms of beer top line growth. Currently, obviously, a challenging exit rate and the guidance does seem to imply some improvement from that exit rate. So can you maybe just help us frame how we should be thinking about the guidance from here? Any considerations that we should consider as it relates to 1Q? And then just any thoughts in terms of what we should anticipate price versus volume? Thanks. Bill Newlands: Well, I think if you'll recall from last year, the strongest quarter that we had, and frankly, that the industry had, was our fiscal Q1. So, while we don't make any habit, as you know, of giving quarterly guidance, certainly, the biggest overlap that we have is in this very first quarter as the business started to soften for the industry as well as for us, as you progressed through the back half of last year. So, that -- when you combine that with some of the socioeconomic climate issues that I've already referred to, I think you're going to see some volatility as the year goes on. Again, the key thing for us, I know I'm repeating myself, but I think it's important to recognize, our brand health remains best-in-class. And in the longer run, that will continue to pay dividends for us as consumers get back to a normalized behavioral pattern. Operator: Thank you. Next question is coming from Bill Kirk from ROTH MKM. Your line is now live. Bill Kirk: Good morning. So some people, including the Teamsters and maybe one of the mega brewers, they seem to be trying to drive a wedge between American beer and imported beer. Are they having any success with that in the eyes of consumers? And how much influence do you think those type of groups have over alcohol tariff policies? Bill Newlands: It’s interesting question, Bill. Tough to answer some of that question. What I would say is one of the things that we're proud of as a company is our 80 years as an American company. As you know, we're -- our ownership is entirely in this country, although we make most of our beer in Mexico because we have Mexican heritage brands. But we spend roughly $1 billion a year in the United States market, supporting our brands. We have many of our grains and our barleys and our corn grown in the Mountain West of the United States for inputs. I think when the overall Teamsters take a very hard look, we are very supportive of the Teamsters. I think we have brought more jobs to this marketplace than any other competitor has because of the growth of our business over time through our distributor network. So, I think as people take a real hard look at what our company is and how we have performed in the marketplace, they will recognize that we have done an exceptional job of building US jobs as we've also built our business in Mexico to support those US jobs. Operator: Thank you. Next question is coming from Andrew Strelzik from BMO Capital Markets. Your line is now live. Andrew Strelzik: Hi, good morning. Thanks for taking the questions. I appreciate all the detail on the guidance. Obviously, it's a very fluid environment. I guess when you just think through all the assumptions that you've made here over the next -- in recasting kind of the next three years, where do you think there's the biggest risks to your assumptions and the biggest -- maybe where we might look back and say, hey, that turned out to be a little bit conservative? Bill Newlands: Yeah, I think the single biggest risk that we have is where the consumer is and how long their concerns last. If we had a crystal ball on that, it'd be a lot easier to make some projections because as the consumer feels better about things, that will help not only our business, but the overall category. Believe me, we'd like to see a healthy category. That would be to everyone in our industry's benefit. And we certainly always like to see the industry succeed as we succeed. So that's the biggest variable that I think is out there is when does the consumer come around. We're going to stay crystal-clear focus on the variables that we can control, as I've talked to earlier today. But the consumer sentiment and the consumers' desire to get back out and shop and be comfortable in the socioeconomic environment is probably the single biggest variable that’s tough to predict. Operator: Thank you. Next question today is coming from Gerald Pascarelli from Needham & Company. Your line is now live. Gerald Pascarelli: Great. Thanks very much for the question. I just had a housekeeping item on the Wine Business. So, the $41 million impact that you called out in your commentary, can you provide some detail on when you expect that to hit the operating income? Is that going to be in the first quarter of 2026? I guess that's my first question. Just any color on the cadence? And then as we think about the cost savings, I think $100 million of the $200 million is coming out of wine. Is that going to be more pronounced benefit to the operating income booking? Like if we had to look to 2027 or 2028, is that going to be more of a benefit when we get to 2027? So, again, any color on the cadence there, I think, would be helpful. Thank you. Garth Hankinson: Yeah. So, the $41 million that you referenced, that was called out in the prepared materials, that will kind of happen throughout the year. So, just -- it won't be any one big quarter where that hits but throughout the year. And then in terms of the cost savings, we called this out in our materials, right? So it's about $100 million in total for Wine and Spirits. We're expecting about $55 million in Q -- or in fiscal '26. So the majority of the actions that we will take to achieve that $100 million savings will occur in FY '26. It's just you won't get the full run rate of that until you move into FY '27 and then maybe a little bit into FY '28. Operator: Thank you. Next question is coming from Dara Mohsenian from Morgan Stanley. Your line is now live. Dara Mohsenian: Hey, good morning. So, clearly, a pretty big revision in long-term beer sales growth from the 7% to 9% range to 2% to 4% in fiscal '27 and '28. So, can you just give us a little more detail on how much of that is just related to the external environment and more conservatism on macros? How much of it is pressure points maybe that are more durable on the beer category, health and wellness, demographics, et cetera? And then a third bucket of market share opportunity for STZ. Just give us a sense of conceptually how much of that falls into each bucket? And I realize this is like the eighth version of this question you've got on the call. But I guess the point is, we're kind of hearing from you guys, your tone is that the beer depletion slowdown, it's more driven by short-term factors. Obviously, we understand the difficult macro environment. But at the same time, you're making pretty large revisions, the beer sales growth post fiscal '26, which should be significantly macro depressed based on what we're seeing. So I'm just trying to sort of bridge those two points and how you guys think about that conceptually? If that makes sense. Bill Newlands: Yeah. It totally does, Dara. Our points are -- we have a near-term issue as it relates to consumer sentiment. Very difficult to predict how long that will last or not. And so as we look at the fiscal year that we're in, we expect that it very well could be a significant factor throughout this fiscal year. I think the question is, when does the consumer sentiment turn around? That's the one that's very difficult to project. But again, this is where we go back to -- you have a shorter-term issue, you have a near-term issue, you don't have a brand health issue. I mean, I look at brand -- we don't always talk about on every single call, but Pacifico. Pacifico was up 16% last year. It continues to grow and get consumer demand. It's -- and I've called it in years past, an early-stage Modelo because it's shown a similar growth profile to what Modelo did sort of a decade ago. The punchline to that is we have strength within our brands. We have new innovation agenda items that will open up new consumer occasions and new consumers to our franchises, and we're going to continue to work on the controllables. It's very difficult for us to project some of the socioeconomic elements that are going to impact it. And it was our belief that it could be longer than we'd all anticipated. It's simply an area we can't answer, and that, therefore, is all reflected in the guidance we provided. Operator: Thank you. Next question is coming from Kaumil Gajrawala from Jefferies. Your line is now live. Kaumil Gajrawala: If I can just follow up on that, Bill. So many times we're hearing sort of non-structural, non-structural and there's a lot of macro stuff, of course. But, at the same time, the long-term algorithm has changed quite a bit. And it feels like maybe some of it is structural and that could be a law of large numbers. Is there maybe a revision in expectations for Hispanic population growth in the United States? Just, is there anything maybe bigger in there that we should be aware of as part of the calculus? Bill Newlands: No, I don't think so. I think that when you look at lots of factors, when you look at our awareness levels versus some of the competition, when you look at our shelf positions versus some of the larger competition, we still have a lot of runway to grow. We have a lot of expansion capability of reaching -- using Modelo as an example, into the non-Hispanic community. We have only been investing against the non-Hispanic community for the last several years. We have increased our amount of marketing spend. As you know, in the back half of last year, we increased our spend even though the consumer was pulling back. And we're seeing that as providing great returns to our business. So, we believe there's still a lot of opportunity for our business going forward that most of what is going on is socioeconomic issues that we believe will moderate over time. The question is, what's that time arise? That's a bit of a difficult one to answer. Operator: Thank you. Next question is coming from Andrea Teixeira from JPMorgan. Your line is now live. Andrea Teixeira: Hi, good morning, everyone. So, Bill, Garth, seems like you have collected hard data to inform you on the new guidance. So I think it would be helpful if you can comment on what has happened with beer volumes in the more Hispanic ZIP codes against the general public, perhaps the later part of the fiscal Q4? And then I definitely understand the loyalty and the dermographic bonus of this cohort from covering Group Modelo when it was public exporting decades ago, and that strength, of course, kind of carry over to you as an importer. Can you also tell us like how that -- I mean, obviously, against the general public has shaped your information -- I mean, your decision to reduce long term? And also related to that, you invested close to 9% of sales into the Beer Business in terms of A&P. And obviously, you have been investing that $1 billion, as you said. So just thinking of the 8.5% that you gave as a guidance for fiscal '26, how should we be thinking given, one, you have already gained a lot of distribution. Of course, you're going to gain additional 10%. And how you are going to be, I think, shifting given that you're becoming more general public as we go, how we should be thinking about all these dynamics? Thank you. Bill Newlands: Sure. So, let's try to take that in some order here. Relative to Hispanic consumer behavior, one of the things we've seen both factually and anecdotally is that there has been some channel shifts in what that consumer is doing. So, historically, you saw overweighting to the stores that were largely Hispanic consumer base and C-stores. Both of those, we have seen some shifting into broader chain-based accounts that are larger accounts. And I think that reflects some of the concerns that we've talked about earlier that the Hispanic consumer is seeing across their broader life and lifestyle. Relative to the 8.5%, we continue -- keep in mind, that with the growth profile that we have every year, that continues to be an increase in the amount of spend that we have put against our business and because of the very strong cost agendas that we have, we continue to put more fuel on that fire where appropriate to continue to support our business. We are going to continue to do exactly that. Our cost agenda, as you saw, we are expecting $200 million over the next 2.5 fiscal years based on a strong cost agenda, and we believe that some of that will get reinvested against our business to help drive future success along those lines. But we test and we review our marketing approach as you would expect on a quarter-by-quarter basis. But we're quite pleased that we continue to see very strong returns for the spend that we put against our Beer Business. Garth Hankinson: Bill, if you don't mind, I’ll just explain a couple more just on the marketing spend, right? I mean -- as Bill just noted, we don't compromise on our marketing spend. It's a very disciplined approach. You've heard us say this before, we've gotten a lot of efficiencies with our media agencies in terms of the effectiveness and spend. And we will continue to target being the number one and number two share of voice with Modelo and Corona. And we've increased our sponsorship or our spend in -- with March Madness, with Soccer, with Major League Baseball, and with college football. So we're not shortchanging by any means the marketing investment behind our beer brands. Operator: Thank you. Next question is coming from Carlos Laboy from HSBC. Your line is now live. Carlos Laboy: Yes. Hello. One interpretation of your three-year guidance and its long-term implication is that Corona Extra is the Bud Light of 2008. Just a declining aging brand with volume declines that the rest of the portfolio might not be able to offset. Can you make the case for Corona Extra as you see it evolving? And I remember that in 2008, you were able to restabilize Corona actually where Bud Light couldn't. How are you planning to stabilize it now and return that to growth? And might that be one of the structural kind of hurdles that you need to clear here that Kaumil was maybe alluding to in an earlier question? Bill Newlands: So, a couple of things as it relates to Corona. First of all, I think it's important to think about Corona about the brand family. Corona Familiar is one of our strong growth players in today's market. We have introduced Corona Sunbrew this year, which we're very encouraged about in its early days. We feel that's going to reach a different consumer and provide the opportunity for improvement in that particular piece. Remember, it's got strong brand equity and awareness. It's the number one brand in the mind of consumers -- the most loved brand in the mind of consumers in the United States. So, Corona still has a very strong consumer base and consumer franchise. Interestingly enough, it is one of our best returns against our advertising approach, very, very strong. And we're increasing that spend in this fiscal year versus what we have done in the past. So, we remain optimistic about Corona. And we expect that that's going to continue to be an important part of our brand flow going forward. Operator: Thank you. Next question is coming from Filippo Falorni from Citi. Your line is now live. Filippo Falorni: Hi, good morning, everyone. I wanted to go back to the beer margin question that were asked before. Just a clarification. So on Slide 14, you guys show that you're expecting COGS inflation of low to mid-single-digit through fiscal '28 including net of cost savings. So, on a net basis, you still have cost inflation. Depreciation, even though you're mitigating some of the incremental addition -- capacity addition is still going up. And the volume environment is also softer. So, I assume there's a little bit less fixed cost leverage, although still positive. So can you help me understand what are the offset to all these headwinds on beer margins that allow you to maintain the beer margin unchanged? Thank you. Garth Hankinson: No. I mean, look, as we said earlier, right, there will be volume increases, which will help. There will be pricing in that 1% to 2%, which will help. Those cost initiatives will keep our inflation or will help mitigate that cost inflation and we'll manage depreciation. So that's where we feel comfortable, say, we'll be in 39% to 40% operating margins. It's all of that put together. Operator: Thank you. Next question is coming from Bryan Spillane from Bank of America. Your line is now live. Bryan Spillane: Hey. Thanks, operator, and good morning, everyone. First, Bill, Garth, thank you for putting a stake in the ground. This is not an easy environment to try to forget about forecasting next month, let alone the next few years. And so whether it's accurate or not, it's just that you put a stake in the ground, you gave us some detail, it's really helpful. So, thank you. My question is more around, as we're thinking about margins in beer and for the whole enterprise actually, just structurally, is the $200 million in savings that we talked about yesterday, is most of that just a -- is most of that related to the divestiture of the parts of the Wine Business and kind of reducing some of the stranded overhead? And I guess what's really underneath my question is, as things evolve, should we expect there could be some opportunities to drive more efficiency and especially as hopefully, the landscape sort of becomes more clear? Garth Hankinson: Yeah, Bryan, thanks for the question. And I think I understood it. So let me try to answer it. As we said that the -- over $200 million of annualized savings, of that, about $100 million of that is associated with the wine business. And that comes out after the divestiture. The remainder of that really is across our corporate functions as well as some in beer. So it is a reset as we try to make sure that we've got the most capable organization with the best skills and resources and investments behind it to deliver on our strategic priorities going forward. I think we've got a pretty good history around discipline of cost management. And so to the extent we identify areas over and above what we shared yesterday, we absolutely would execute on those. But it's a pretty -- the amount of cost we're taking out is, I think it's a pretty aggressive yet very achievable amount and most of which we execute on this year. Bill Newlands: So let me pile on you for once. Bryan, I think one of the things that Garth was just touching on is important. We have -- first of all, we have a superb supply chain capability within our business, and we have already shown our colors around that. As we create more efficiencies over time, we invest that money behind our business to help grow the future. That's an approach we have taken for many, many years now, and it's one that we're going to continue to take. So as our ability to improve the efficiencies in our business continues to grow, we will continue to invest that money on the future of our business. Operator: Thank you. Next question is coming from Steve Powers from Deutsche Bank. Your line is now live. Steve Powers: Good morning. Bill, Garth, thanks for the question. Maybe a quick one for each of you actually. Bill, similar to how you've discussed a couple of times the factors influencing demand on beer, I'd love any analogous comments you might have on the Wine and Spirits side and just how you see the various factors stacking up to inform the flat to 3% outlook that you have on the portfolio you are planning to retain. And then, Garth, maybe you could expand a little bit more detail, if possible, on just how recent results and the revised outlook on beer is influencing how you're approaching the build-out in Veracruz or any of the modular additions at the existing, the other facilities? Just any changes that are maybe worth highlighting? Thank you. Bill Newlands: Sure. Starting with wine, I'll let Garth answer the second half of the question. Our thinking around the Wine Business relates very similar to what we've done in beer, which is this creates a Wine and Spirits Business going forward that plays at the higher end of the business. And that ties in with the long-term premiumization trend that you see across all alcohol beverage. So we've finally gotten our portfolio sort of where we want it so that it reflects that we're playing against that premium and up-sector across both segments of our business. To give you a perspective, in the fourth quarter of last year, the retained business in Wine and Spirits grew 4% in depletions, which I think gives us some confidence and some excitement about what the future can look like for a much narrower but a much more focused higher-end portfolio for our Wine Business. That business has continued to be much stronger than what we've seen in other sectors of the Wine Business, which is why we're going to spend our time and energy on that subsegment of the overall wine category. Garth? Garth Hankinson: Yeah. And then just in terms of the modular approach and changes in how we're thinking about capacity, I mean, there's really nothing more to share than what was in the materials we had earlier today or last night, I should say. We're going to continue to manage our footprint responsibly and in line with what our volume expectations are. As you've seen, we've reduced our expectations for capacity through FY '28 in the materials we shared last night. We're on pace -- specifically to Veracruz, we're on pace to open that. That will be an important brewery for us as we think about the contribution that it has to the overall portfolio. But we'll be really mindful and bring on capacity when it's needed. Operator: Thank you. Next question today is coming from Kevin Grundy from BNP Paribas. Your line is now live. Kevin Grundy: Great. Thank you. Good morning, guys. I wanted to come back to the investment levels in the Beer Business. I want to ask it from a little bit of a different angle. Garth, I think you mentioned satisfactory levels. I think looking back, the 8.5% is below the 10% levels where the company was in fiscal '20 and 2021, and you typically are in this 9% to 10% sort of range. So I wanted to ask, everyone on the call is sympathetic to the volatility in the environment. Number one, was there any thought to kind of leaning in here, albeit weighing on margins a bit to try to accelerate top line growth, not an uncommon tact, as you guys are well aware, in CPG you do see companies do that when the top line is waning as it clearly is. And then two, for both of you, should investors perceive this as kind of a philosophical reorientation, if you will, at Constellation, where there's kind of less of a bias towards top line growth and more of a bias towards margin preservation and cash flow, just kind of given what you're experiencing in the business, which would also not be uncommon either. And you might push and say it's not an either/or that's kind of a false choice, but I’m just -- would like to hear more about how you're thinking about that balance. Thank you both. Garth Hankinson: So just on the marketing investment. So, we feel, as I said earlier, and as Bill said as well, we feel really comfortable around our marketing investment. As we laid out at our Investor Day, our target was to be about 9%. And that's where we were in FY '25. We're going to be a little bit below that in FY '26 in terms of the forecast. But we don't limit that, right? When we talk to our marketing teams, we ask them what they need and they tell us what they need, right? And so this is reflective of what our team thinks it needs to drive the type of performance that's included in our outlook. That being said, and Bill referenced this earlier around our cost savings agenda and how we take savings from our cost savings agenda and reinvest that in high-return opportunities within the business. We did that last year, where in Q3 and Q4, we invested significantly more money in marketing to drive and to support our brands. So that's the discipline that we have on a year-to-year basis or a quarter-to-quarter basis. That won't change. And the last piece I'll just say on that before I turn it over to Bill as well is, again, while the percentage is coming down, we've gotten significantly more efficient in the way that we buy media and the way that we manage our marketing spend. Bill Newlands: And relative to your comment about, has our approach to things changed? The answer is no. Look, six out of the last eight years, we have been the number one Circana large company CPG company in terms of growth. It included last calendar year despite the challenges that we saw both within our industry and to some degree, within our brands as part of that industry. But it didn't change the fact that we were the number one large company -- Circana growth company last year. We expect to continue to see both top line growth and maintaining a strong margin structure of 39% to 40%, as Garth outlined. Our expectation around that hasn't changed. We think both are important, and we're going to do our damndest to do both of those. Operator: Thank you. Next question is coming from Robert Moskow from TD Cowen. Your line is now live. Robert Moskow: Hey, thanks. We're all kind of trying to fish around to figure out what the exact tariff impact is on your can costs. And it sounds like it's pretty sensitive information, so I understand. But I'm just trying to figure out if I have the building blocks right. If you spend like $900 million a year on aluminum cans and it's a 25% tariff, do I just put those two numbers together? Or am I just way too high on that number? Garth Hankinson: I would say take a look at the information that we provided in the guidance that we issued last night. And I think that if you look at the top and bottom-line growth rates, you can figure out what the impact is. Robert Moskow: Well, there's a lot of other assumptions in those impacts. So, what are the other assumptions? Would it be productivity? Garth Hankinson: Robert, yeah, on an absolute basis, as we disclosed in all the materials, it includes productivity, it includes cost savings. It includes inflationary pressures and so forth. But again, that is all baked into the margin assumption. Tariffs are as well. So all disclosures have been made available as made available. Operator: Thank you. Next question is coming from Michael Lavery from Piper Sandler. Your line is now live. Michael Lavery: Thank you. Good morning. Just wanted to come back to just the capacity approach, and I recognize you've tried to adjust to match what you expect to need. But maybe help us understand the mix a little bit. It sounds like you're still adding modules besides Veracruz. I guess maybe first, are we right to assume that the flexibility you have to ship by sea from Veracruz should at least allow for some potential savings? And if so, what's the thinking to add at all your locations as opposed to just push there? Maybe just would love to understand that a little bit better. Garth Hankinson: Yeah. I mean when we look at our brewery footprint, there's a number of things that we take into consideration. One is the size and scale of the brewery. Another is, what are the capabilities of that brewery in terms of the brewery capable of producing the entirety of the portfolio and have the complexity to service the entire portfolio, or is it a brewery that's going to be a bit more specialized and run large packaging lines. And then to your point, we also look at how do we optimize logistics costs in terms of getting product into the market most cost efficiently. So those are the things that kind of go into it. Specifically to Veracruz, while that is further south, and I know that there's been questions around what the impact that will have on logistics going forward, keep in mind that in the overall footprint, that will be about 3 million hectoliters of the overall 55 million hectoliters. So, it's a relatively small piece of the total footprint. We're still reviewing what we -- what options we have from a logistics standpoint to make that as cost effective as possible. But we're also, from a capability standpoint, treating Veracruz as a brewery that will run along production lines of high-volume SKUs and therefore, minimize the cost there and try to offset any incremental logistics costs. Operator: Thank you. We’ve reached the end of our question-and-answer session. And ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Operator: Hello and welcome to the Constellation Brands Q3 Fiscal Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joe Suarez, Vice President, Investor Relations. Please go ahead, Joe. Joseph Suarez: Thank you, Kevin. Good morning, all. Happy New Year and welcome to Constellation Brands Q3 Fiscal '25 Conference Call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements made on this call. Following the call, we'll also be making available in the Investors section of our company's website a series of slides with key highlights of the prepared remarks shared by Bill and Garth in today's call. Before turning the call over to Bill, in line with prior quarters and as Kevin just noted, I'd like to ask that we limit everyone to 1 question per person, which will help us end our call on time. Thanks in advance and now here is Bill. William Newlands: Thanks, Joe and welcome all to our Q3 fiscal '25 earnings call. As usual, I will start with a few key points regarding the quarter and our outlook for the remainder of the fiscal year. First, growth in consumer demand for our beer portfolio sequentially expanded in the third quarter and this in turn drove a marginal uplift in depletions growth relative to Q2. This acceleration was supported by the incremental marketing investments we deployed across our core brands in Q3 as we responded to the softer macroeconomic backdrop that began affecting consumer spending during the summer. As a reminder, subdued overall spend and prolonged value-seeking behavior among consumers, have been key near-term limiting factors on demand growth, not only for our portfolio but also for the dollar sales growth rate of total beverage alcohol. That said, beverage alcohol remains relatively unchanged in its share of total consumer expenditures. So we believe its slower rate of growth also reflects the adoption of broader value-seeking behavior across consumer goods. Against that backdrop and given the near-term uncertainty on whether consumers will revert to more normalized spending behaviors in Q4, we have made the decision to adjust the outlook for our fiscal '25 beer business net sales growth to be 4% to 7% and operating income growth to be 9% to 12%, still yielding an operating margin of approximately 39%. Notwithstanding this prudent adjustment to our beer business guidance, our revised fiscal '25 comparable EPS range still yields double-digit growth from the midpoint to the high end, which includes other adjustments to our outlook that Garth will cover in more detail shortly. Second, despite softer consumer demand due to macroeconomic headwinds, our beer business continued to outperform the total beverage industry in dollar sales growth in Circana tracked channels over the 12 weeks ended December 1. And at a total company level, we once again achieved dollar sales growth outpacing the total CPG sector, as we approach nearly 12 years as a CPG growth leader. Third, we continue to effectively execute against our key initiatives in our beer business. From a distribution perspective, we have now secured more than half of the incremental 500,000 points of distribution that we identified as the fiscal '24 to fiscal '28 target for our core brands during our Investor Day with a significant portion of those gains achieved in the current fiscal year. On the innovation side, the depletion growth contribution of our new liquids and pack formats released over the last couple of years is within the 20% to 40% range provided in Investor Day. That said, across our high-end light beer offerings, which include Modelo Oro from an innovation perspective and our more tenured Corona Light and Premier brands, we are facing headwinds from competitive pricing, particularly in large pack formats. And across our Chelada brands, we are facing consumer demand growth rate headwinds from the convenience channel, where our Cheladas have outsized representation given the channel's core consumer base and the predominantly 24-ounce can format that skews more towards C-store retailers. To that end, we are actively working on levers to address the competitive dynamics in the high-end light beer segment and continue to pursue distribution opportunities for Cheladas given our ongoing investments in broader marketing for the brands, including English language linear TV advertising for the first time and recent extensions into the 12-ounce can 12-pack formats. We also continued to drive significant demand in our portfolio from new legal drinking age consumers and are pleased to have had a higher proportion of our dollar sales this year coming from 21 to 24 year olds as they have made more trips to the store and spend more on each trip across our brands. In fact, the share of spend for this demographic within our dollar sales is nearly twice that of the beer category and that share has grown at more than twice the rate of the category and the high-end segment relative to last year. Last but not least, we also continued to consistently deliver against our capital allocation priorities. We maintained a 2.9x net leverage ratio on a comparable basis in the third quarter, still slightly below our 3x target. We further advanced our brewery capacity investments and returned nearly $220 million to shareholders through share repurchases and over $180 million in dividends in Q3. This brings our total year-to-date cash returns through share repurchases to approximately $670 million or to more than $1.2 billion, including both repurchases and dividends. With that, let's turn more fully to our beer business' performance. During the third quarter of fiscal '25, our beer business grew depletions by 3.2%, which again was an acceleration from last quarter despite continued consumer economic weakness. Shipments were up 1.6%, which as noted in our prior earnings call, trailed depletion growth due to the impact of planned maintenance activities at our breweries during the quarter. From a financial perspective, the business delivered net sales and operating income growth of approximately 3% and 2%, respectively, which included disciplined incremental pricing taking in the fall, which is in line with the 1% to 2% pricing expectations we provided for fiscal '25, another $40 million in cost savings achieved in Q3 as the persistent focus on driving savings and efficiency from our end-to-end supply chain team continues to deliver significant benefits to the business and incremental marketing spend for the third quarter that we announced in early September. Now moving on to the performance of our largest brands. Modelo Especial grew depletions by over 3% and upheld its position as the top share gainer in U.S. tracked channels. We continue to see a long growth runway ahead for Modelo Especial, as significant opportunity remains across key metrics like awareness, distribution and household penetration relative to competitive brands. While Corona Extra depletions declined approximately 1%, it continued to increase its dollar share as a top 10 gainer in the category. We remain positive about the outlook for Corona Extra's growth as it continues to be the most beloved beer brand in the U.S. and has responded well to the incremental marketing spend deployed in Q3, particularly around the World Series. Pacifico delivered another quarter of very strong depletion growth of nearly 20% and remained the #4 dollar share gainer across the total beer category. We continue to build on the momentum of this brand in its core Southern California market, where it is already the #3 beer brand but still growing double digits. At the same time, we are strategically expanding Pacifico into key metro markets across the country using the same thoughtful approach we applied to Modelo Especial, seeking to balance rising awareness and demand with the appropriate increases in distribution to support sustainable long-term growth. Our Modelo Chelada brands delivered an increase of approximately 4% in depletions and Limón y Sal remained a top 15 share gainer in the category. As noted earlier, our Chelada brands are facing a challenging consumer backdrop in the convenience channel but we expect this to only be a near-term headwind and for the brands to return to the growth profile more in line with expectations provided at Investor Day. All in, looking ahead, we aim to build on the sequential acceleration we have seen in volume growth across our core brands by continuing to make progress across the key volume growth drivers for the business, increased distribution, consumer-led innovation and attracting new legal drinking age consumers across our brands, as well as by deploying continued incremental marketing investments in Q4. Moving on to wine and spirits. As announced last month, our decision to divest SVEDKA builds on the actions we have taken over the past several years to align our wine and spirits portfolio with evolving consumer preferences and growing market sectors, focusing on higher-end brands. To that end, we are pleased to announce this morning the closing of that transaction. And we look forward to continuing to drive the growth of our higher-end craft spirits portfolio, which in the third quarter delivered depletion increase of approximately 9%. Conversely, the impact of ongoing consumer demand headwinds in the wine category, particularly in the lower-priced segments and of retailer inventory destocking remain the main drivers of a decline in wine and spirits shipments of 16% year-over-year, which in turn was the primary driver of the respective 14% and 25% declines in net sales and operating income for that business. Our fine wine portfolio, however, achieved depletion growth of 6%. And our largest premium wine brands, Meiomi and Kim Crawford, delivered depletion increases of over 7%. This is aligned with our focus on delivering growth and improving margins by driving our higher-end brands and operating efficiencies while also seeking to deliver value from our mainstream brands. Against that backdrop, the business remains focused on continuing to advance in several areas. First, the tactical pricing and marketing support actions we are taking in selected markets to accelerate our top 10 largest brands; second, with better alignment with our distributor partners to help improve performance in our largest markets and channels; and third, cost savings and operational efficiency initiatives to drive leverage to the bottom line. In light of continued consumer demand headwinds previously noted, we have updated our fiscal '25 outlook for wine and spirits business to net sales and operating income declines of 5% to 8% and 17% to 19%, respectively. In closing, we continued to manage a softer consumer backdrop due to macroeconomic headwinds and expect to deliver a very solid fiscal year underpinned by our continued progress against the key growth drivers of our beer business and our proactive actions to improve the performance of our wine and spirits business. And with that, I'll turn the call over to Garth, who will give you more details on our financial results and outlook. Garth? Garth Hankinson: Thank you, Bill and good morning, everyone. As usual, my discussion will focus primarily on comparable enterprise results accompanied by business segment details. Let's get started with our enterprise results. For the third quarter of fiscal '25, enterprise net sales were relatively unchanged year-over-year as moderated growth from our beer business was offset by the decline in our wine and spirits business. Enterprise operating income on a reported basis was in line with the prior year and on a comparable basis, declined by 2%, reflecting growth from our beer business and favorability in corporate expense being more than offset by the decline in our wine and spirits business. Comparable EPS was $3.25 for the quarter and was relatively flat year-over-year as the decline in comparable operating income was offset by favorability in unconsolidated investments from the transition in our Canopy ownership to exchangeable shares and the impact of a more favorable comparable effective tax rate. Before I get into the segment details, I would like to provide an update on our enterprise guidance for fiscal '25. We now expect enterprise net sales growth of 2% to 5%, comparable operating income growth of 6% to 9% and comparable EPS to be between $13.40 and $13.80. These new enterprise guidance targets reflect changes to the net sales and operating income growth targets for both business segments that Bill referenced earlier as well as a few additional updates that I will cover in more detail shortly. Now diving into the business segment details for the quarter. Starting with our beer business. Net sales grew by 3%, a $64 million increase, driven by beer shipment volume growth of 1.6%, a price uplift of 2% or $39 million from targeted actions taken during the fall and a 30 basis point headwind from unfavorable mix as consumers continued to shift to value-oriented larger pack size, particularly in cans. Beer depletions grew 3.2%, an acceleration from Q2 but reflected the ongoing consumer dynamics that Bill discussed. Regarding selling days, they were flat in the third quarter. And as a reminder, for the full year, there will be 1 less selling day, which already transpired in Q2. Our on-premise depletions grew nearly 5% and accounted for over 11% of our total volumes, supported by Modelo Especial and Pacifico as the top 2 dollar share gainers in draft and Corona Extra maintaining its top spot in packaged on-premise. Off-premise depletions grew nearly 3% and accounted for approximately 89% of our total volumes. Within the off-premise channels, independent retailers not captured in Circana data achieved a lower growth rate, mainly driven by convenience and liquor store channels in most of our top 10 markets as well as independent grocers in our top state of California. Across these key states, unemployment rates for both total and Hispanic consumers remained elevated relative to the national average, which we continue to believe is a fundamental near-term driver for the relatively lower depletion growth rates we have seen in these markets over our last couple of fiscal quarters. However, as Bill noted, while it is uncertain whether consumers in these states and channels will revert to more normalized purchase behaviors in the near term, we do not anticipate these trends to be a structural headwind over the longer term. On that note, shifting to our full year expectations for top line drivers. While the third quarter beer shipments were outpaced by depletions due to normal seasonality and planned maintenance at our breweries, we continue to expect full year absolute shipment and depletion volumes to be closely aligned. And also from a full year perspective, as Bill noted, we now expect net sales for our beer business to be 4% to 7%, inclusive of 1% to 2% pricing. Moving to beer operating income and margins. Operating income grew by 2%, and we had a 60 basis point per year -- per year-over-year decline in operating margin to 37.9%. The increase in operating income was driven by higher gross profit, partially offset by increased marketing investments. Improvement in gross profit was largely a result of the previously mentioned net sales drivers and a $40 million benefit from ongoing cost savings and efficiency initiatives, partially offset by an absolute COGS increase of nearly 1%, excluding these savings. Marketing expense as a percent of net sales was just over 10% for the quarter, driven by the incremental marketing actions that Bill discussed. Our full year expectation for marketing expense as a percent of net sales remains approximately 8.5%. Other SG&A expense was 5% as a percentage of net sales in line with our unchanged full year expectation. From a fiscal '25 full year perspective, in terms of operating income, we now expect our beer business to grow between 9% to 12%, while our operating margin expectation remains unchanged at approximately 39%. Shifting to our wine and spirits business. Net sales declined just over 14% in the third quarter, largely driven by shipment volume decline of over 16%. The volume decline was largely a result of the ongoing category headwinds in the wine category, particularly in the U.S. wholesale market from weaker consumer demand, as well as continued inventory destocking by retailers. Despite these persistent challenges, we continue to expect improved organic shipment volume growth performance in our wine and spirits business in the fourth quarter as we anticipate more fully realizing the benefits of the pricing, marketing and distributor initiatives we launched at the beginning of this fiscal year, while also benefiting from the historical seasonal trends of the business. Additionally, retailer inventory destocking has broadly started to stabilize, which we expect will result in additional tailwinds to support demand growth moving forward. As Bill noted, for fiscal '25, we now expect wine and shipments organic net sales to decline 5% to 8%, reflecting persistent volume headwinds in the wine category and excluding $23 million of net sales following the recently closed divestiture of SVEDKA. Operating income for the wine and spirits business declined by $32 million, resulting in an operating margin of 22.1%. This decline was primarily driven by a decline in overall shipment volumes. Marketing expense for the wine and spirits segment as a percentage of net sales was just over 11% and remained elevated above our medium-term target as increased investments in our largest brands continue, the vast majority of which are for our higher-end brands. Other SG&A as a percentage of net sales was over 14%, consistent with our medium-term targets. In line with the adjustments to our net sales expectations, we are now expecting fiscal '25 operating income for our wine and spirits business to decline 17% to 19%, excluding $10 million of gross profit less marketing of the SVEDKA brands that are no longer part of the business following their divestiture. Shifting to the balance of the P&L. Corporate expense for the third quarter was $63 million, a 3% decrease driven by lower compensation and benefits, partially offset by higher consulting services and increased depreciation expense as a result of our corporate headquarters relocation. Following this decrease, we have updated our fiscal '25 corporate expense outlook to be $250 million. Interest expense remained flat year-over-year and for the quarter was $104 million. For the full year, given continued favorability from lower average borrowings and adjustments related to capitalized interest, we now expect our fiscal '25 interest expense to be $410 million. Comparable effective tax rate was 16.3% compared to 18% for the corresponding quarter last year and we continue to expect our full year comparable tax rate to be approximately 18.5%. Wrapping up with free cash flow, which we define as net cash provided by operating activities less capital expenditures. We generated year-to-date free cash flow of $1.6 billion for fiscal '25, a 13% year-over-year increase. This strong cash flow generation has enabled us to reach and maintain a net leverage ratio below our stated target, return over $1.2 billion to shareholders in dividends and share repurchases through November of 2024 and continue to advance our brewery investments in a disciplined and agile manner. As we look to the remainder of fiscal '25, we now expect to deliver annual operating cash flow of $2.9 billion to $3.1 billion and free cash flow of $1.6 billion to $1.8 billion, both above our initial targets and to continue to deploy that cash with a balanced and thoughtful approach to capital allocation. With regards to our brewery expansions and given our agile modular approach to these projects, we have shifted the completion and planned start-up of our latest addition at our existing breweries in Mexico from the end of fiscal '25 to fiscal '26. The timing of our new brewery in Veracruz remains on track with the completion of the initial phase of that facility anticipated by late fiscal '26 or early fiscal '27. While the timing adjustment of the existing breweries expansion has shifted some of our beer CapEx, we previously anticipated for fiscal '25 into fiscal '26, we continue to expect to deploy approximately $3 billion in CapEx between fiscal '25 and fiscal '28. In closing, we made strong progress against our strategic initiatives this quarter and maintain a solid growth trajectory for the enterprise. We continue to invest behind the momentum of our brands, drive operational efficiencies and maintain cost discipline and provide strong cash generation while still executing against our capital allocation priorities as we have done for the last several years. We will continue to closely monitor the subdued spend and value-seeking trends we have seen develop across our consumer base and the economic drivers influencing that behavior as well as other possible macro shifts, particularly any changes arising from potential tariff policies. As always, we will seek to balance our consumer obsession and our value creation commitment to our stakeholders as we focus on executing against our strategy and stated priorities. Thank you all for your continued support as we approach the close of fiscal '25. With that, Bill and I will now be happy to take your questions. Thank you. Operator: [Operator Instructions] Our first question is coming from Dara Mohsenian from Morgan Stanley. Dara Mohsenian: Bill, just wanted to take a bit of a step back on the drivers behind the softness you're seeing on the beer depletion front. If you had to separate that out between the short-term consumer weakness you focused on with the subdued spend and the value-seeking behavior that you mentioned on the call versus some of the longer-term concerns in terms of health and wellness, whether GLP or demographics, maturation of the beer brands in your portfolio, cannabis, et cetera, what are your sort of thoughts on if you're seeing any pressure from some of those more enduring longer-term points versus the short-term dynamics that you mentioned? And just putting it all together, how might that impact the way you think about long-term beer revenue growth guidance? William Newlands: Sure. Our view of this is that the length of the near-term moves has been a little longer than what we had anticipated but we still don't see it as anything structural. We don't see it as long-term issues attached to this business. We've seen higher uptick in unemployment, 31 -- even though the overall unemployment rate was pretty consistent, 31 states were actually saw an increase in unemployment and that always effects. You may have also seen, there was an interesting Wall Street Journal article 1 week or so ago that showed the breakout of consumers' spending for those making $50,000 a year and less and that's a portion of our business. The key thing that I think is important as you look at this, is one of the things I noted in my remarks, which is that alcohols percent of the consumer basket remains consistent. The overall basket is down but our percentage of that basket remains the same. And I think that's an important thing. We would expect to come out of this trough and we certainly hope that that's going to happen in the nearer term. Operator: Next question is coming Kaumil Gajrawala from Jefferies. Kaumil Gajrawala: I think maybe just to talk a bit on capital allocation. How do you maybe think about the right amount of CapEx that you're deploying into new capacity given that we've got this slowdown. And if it's macro, we don't really know how long it will be, maybe delaying Veracruz or pushing out some of this CapEx. And then also, when you think about the returns on those investments and maybe the risk to the returns on those investments, how do you think about that capital deployment versus just buying back a much larger amount of shares? William Newlands: Yes. I think a couple of things. I'll start and see if Garth wants to add anything into that. One of the things we've said consistently is that all of our expansions at this point are modular, which gives us the opportunity to advance them or delay them depending on any particular effects that we see in the marketplace. I think Garth has been really clear that our capital allocation priorities have been very consistently driven over the last several years. You've noted that we continue to buy a significant amount of shares in this quarter, $220 million. We still have $1.9 billion in authorization to buy back shares from our Board of Directors. So I think it's pretty clear what our focus of attention is and you would expect that, that's going to continue. Garth, anything you want to add to that? Garth Hankinson: No. I mean, just a couple of minor things, I guess, Kaumil. I mean and then as Bill stated, our approach has been and continues to be very agile, very modular. I mean, in my remarks, we outlined the fact that we're pushing off some of the -- bringing online some capacity from this year into next year. So again, that's just an example of the things that we have done and we will continue to do. As Bill noted, we still have the $1.9 billion worth of authorization under our existing share repurchase program. And one of the things we've talked about in the past is this cash flow inflection that we have here over the next couple of years and we're excited to what that means. And we will use a very disciplined approach as we think about deploying that next dollar and where that goes. I think one of the things that's worth pointing out, as Bill stated, we've been committed to our capital allocation priorities. We're nearing the end of our large commitments as it relates to brewery expansion in Mexico. As we stated in our prepared remarks, we've now been 2 quarters at or below our targeted leverage ratio and we've deemphasized M&A. And so as we look forward, I would say that the approach to capital deployment and with a bias towards returning capital to shareholders is likely going to continue. Operator: Next question today is coming from Bonnie Herzog from Goldman Sachs. Bonnie Herzog: All right. I actually had, I guess, a couple of questions on your updated guidance. First, while you lowered your full year beer net sales growth guidance, which makes sense, you actually widened the range and there are only 2 months left in the year. And I certainly understand there's a lot of uncertainty but just curious why you might not have better visibility on your shipments, especially thinking about the upcoming spring reset. Then second, what will be the key drivers that will put you at the bottom end of this range maybe versus the top end? I guess, Bill, based on all your comments, I assume if unemployment for your core demographic weakens, this will certainly put you at the bottom end. But have you factored in the impact from the awful California fires? William Newlands: Sure. What -- as you would expect, when we decided on this particular range, this range reflects risks that we see that could potentially occur that would include things like unemployment, potential tariffs, things of that nature. And the opportunity is just the opposite of that. The upper end reflects if things improve and we start to see some of these macroeconomic headwinds go the other direction, then you could see improvement in a wider range. It's -- I think the best way to think about it is, there's been a lot of volatility. It's been very volatile compared to historical trends. And we thought it was prudent given everything that we can see at this point in time to broaden the range a bit. Relative to the fires, it would be very fair to say that our thoughts are with everyone affected by these fires in Los Angeles. Our focus remains on ensuring the safety of our people. And beyond that, we're in the process of making donations to support both the victims and the efforts of those on the ground. Certainly, the end of that is not clear at this point. But certainly, that had already begun. And I think our -- you should view that our guidance reflects that particular unfortunate situation as well. Operator: Next question is coming from Lauren Lieberman from Barclays. Lauren Lieberman: So just shifting to wine and spirits. I mean, I think it's fair to say we're kind of in negative -- this ongoing negative revision cycle for that business. So I just -- you called out some of the positives. Maybe you could share a little bit more on like what hasn't gone according to plan? What in the turnaround plan might need tweaks because the hole kind of keeps getting deeper and it doesn't seem like there's many signs, at least from the external standpoint of stabilization. William Newlands: Sure. Well, as we said at the beginning of the year, it was going to take us 9 to 12 months and that's about what we're heading into at this point. I think you saw some firm shoots in Q3. Meiomi and Kim Crawford were up 7%. Our craft and depletions, our craft spirits portfolio was up 9%. We continue to be hit very hard at the lower end of the business. The lower end of the business is not healthy. But I think the move that we made relative to SVEDKA is an important example of where we continue to be focusing our business toward the higher end, where we believe there's better growth potential and better margin and profit potential than the lower end of the business. That process is continuing. And we remain optimistic that we're going to continue to see some of these critical brands, those top 10 brands that we're focusing our attention on, continue to see improvement, as you saw with Meiomi and Kim Crawford as an example. Operator: Next question today is coming from Bryan Spillane from Bank of America. Bryan Spillane: I guess my question is more about just the beer category in general and if I'm looking at the numbers right, we're going to ship in calendar '24 close to what we shipped in 1990, right? Like the category is definitely sick. So I guess 2 questions related to that, or 3. One, do you agree with that? Two, why -- what will turn it? Seltzers seem to give it a little bit of a pop and that's faded. Just so what do you think from a category perspective is needed to turn that? And then the third is just -- can you remind us what level of volume growth in the U.S. beer category in total underpins your medium-term sales targets? William Newlands: Sure. So obviously, the beer category hasn't been particularly healthy, as you point out. I think the differentiating points that need to be reflected relative to our business, is that we have consistently outperformed that category. Modelo, we continue to believe has a lot of runway for growth. It's awareness, household penetration and so on remain tremendous opportunities. And as you saw from the distribution perspective, we're already halfway plus to the distribution growth that we had presented at Investor Day. So I think all that's positive. You then add on the growth potential that you see on brands like Pacifico and Victoria, frankly, they both have seen strong double-digit growth profiles for those businesses. The demographic profile of those business is slightly different. So those present some good opportunities. And then you look at things like Corona Sunbrew or Corona Non-Alcoholic, which again, put us into slightly different opportunities and situations than what we have been in before. Keeping in mind, when you sum all that up, Bryan, we continue to grow ahead of CPG and have for over 1 decade. so certainly, while there have been some challenges in the overall category, we have consistently outperformed not only the category but the CPG sector for literally over 1 decade and we continue to expect to be able to do so going forward. Operator: Next question is coming from Rob Ottenstein from Evercore. Robert Ottenstein: Great. Just 2 short follow-ups. One, can you just give us a sense of what -- and this is both on the beer side, what your internal inventories are for beer and your distributors maybe benchmarking versus kind of normal levels of this time of year? And then the second, what are your expectations in calendar 2025 for shelf space gains for the year compared to prior years? And any kind of percentage would be great. William Newlands: Sure. Inventories are fairly consistent with what we've had historically. We -- just in case there are any order disruptions, as you would expect, we have a bit more on this side of the border than we have had historically and we'll probably continue to do so until we understand exactly how that all lands but that's just good business. Really, it has no impact on the ongoing inventory levels. We would expect, given the outsized double-digit gains that we had in shelf positions this past calendar year, that this year would -- coming would probably refer to a more normal year, where we have consistently outperformed and gained shelf presence, primarily because we've outperformed the category, both at the high end and in the overall beer category collectively. So while we haven't put an exact percentage on that at this point, Robert, we would expect to continue to gain shelf because, frankly, we've earned it. Operator: Next question is coming from Andrea Teixeira from JPMorgan. Andrea Teixeira: I have a follow-up question on the volume. And also the real question is more how to think about the tariff risk? I understand, obviously, you're lobbying with some of the raw materials that you buy from the farmers in the U.S. But based on your long-term algorithm, if a tariff were to be implemented, would you prioritize volumes? In other words, take less pricing given the elasticity? Or would you say that 39% to 40% is our operating margin goal and that's going to be a hit for the beginning but you want to stand behind it. And then from a follow-up perspective, I was just like, the range for volumes, I know Bonnie tried to ask that question, the range for volumes were very wide, given that you only have about 45 days left, it was like between minus 5% and plus 9%, if my math is correct. So I understand the puts and takes and the lack of visibility. But really, what would take you to the minus 5% given that you're still seeing volume growth from our understanding in the track channel. William Newlands: Sure. Well, let's start with a minor correction on the last point, which is beer volume growth projection was 4% to 7%. It was not negative. It's 4% to 7% plus. So, just so we're clear on that particular point. Relative to the tariff [indiscernible] Andrea Teixeira: For this quarter -- sorry, just for the quarter, I believe it's a really wide range for the quarter itself, for the fourth quarter. William Newlands: So continuing to answer your question, relative to the tariff scenario, we have a number of what ifs, as you would expect and it's really too early to hypothesize about what might or might not happen. As you would expect, we have a lot of permutations that we have considered and certainly we'll adjust our approach depending on what terms -- what plays out as we go forward. Garth Hankinson: And Andrea, I'll just follow up quickly on your question regarding Q4, right? So as Bill alluded to in his prior answer to Bonnie's question is, we acknowledge that the range right now is a little bit wider than we typically are given where we are in the calendar year. But this really is to acknowledge that there's potential for continued risk on the lower end, given macroeconomic conditions and whether or not they improve, stay where they are or get worse but also opportunity on the upper end as well. As we think about those macroeconomic risks potentially, obviously, as we've been talking about in this call, we're most concerned around unemployment but there are others as well. Fortunately, the print today from -- on unemployment seem positive. So hopefully, that continues and is a tailwind for us as we go through Q4. Operator: Next question is coming from Filippo Falorni from Citi. Filippo Falorni: I wanted to ask on beer margins. Obviously, this quarter, they were down year-over-year but given the increase in advertising that you called out, as you look a little bit ahead in terms of the beer margin opportunity, can you talk a little bit about the opportunities from pricing, commodities and also some of the FX consideration given the pace of weakness in recent months? Garth Hankinson: Yes. I mean as it relates to beer margins. Look, I mean, the way we feel about beer margins really hasn't changed over the last several years. We think that the right way to think about our beer margin profile is in that 39% to 40% range. In any given year, we're going to have the tailwinds of incremental volume, more throughput through our footprint, obviously, very aggressive cost savings initiatives that we have every year as well as the pricing actions we take. Offsetting those in any given year will be normal inflationary impacts. Obviously, as we build out our portfolio and our production footprint, we have more, the depreciation that comes on. And then obviously, there can be drags as it relates to fixed overhead absorption as you're growing into that capacity. So all up, all in, we continue to think that 39% to 40% is the right range for our beer margin, acknowledging that in any given year, we might have more headwinds and we could fall below 39% like we did in '23 and '24, where we had outsized inflation. But there could be years where we have more tailwinds like we did in '22, and we can deliver above 40%. So those are the puts and takes and that's why we think 39% to 40% is the right range. Operator: Next question is coming from Robert Moskow from TD Cowen. Robert Moskow: I think you said that price competitiveness has started to dial up on the light beer segment. And I wanted to know like -- I didn't hear if you have a response to that. Do you intend to promote more aggressively? And just in general, if the volumes are weak overall in the industry, can the industry still get pricing like it normally does? Or is there a risk that some of it needs to be discounted back more than normal? William Newlands: We're assessing that -- the question of the light beer sector as we speak, as you would expect. 1% to 2%, as you know, we do it on a by SKU by market basis. So therefore, I think the answer remains yes. Those opportunities continue to present themselves but they do them selectively. It's not a broad market across the board change. It's looking specifically at markets, looking at velocities and growth profiles in particular markets and understand where those opportunities present themselves. It also applies to pack sizes. You might be able to do something in single serves versus larger pack sizes or vice versa. So we believe 1% to 2%, which we've done very consistently over time, remains the right answer, given big swings is a negative. And that's what we've tried to avoid. In fact, as you know, we avoided that during COVID. We were much more consistent on our 1% to 2% algorithm and we think that's more consumer-friendly than the opposite. Operator: Your next question is coming from Peter Grom from UBS. Peter Grom: I was just hoping to ask on beer guidance for the fourth quarter but just maybe a couple of modeling considerations. Maybe just to start, shipments versus depletions, Garth, I think you mentioned that you still expect them to be closely aligned on a full year basis. So I just want to make sure I heard that right, which would mean you would expect shipments to be a bit below depletions in the fourth quarter. And then just relative to the tracked data, you kind of saw a return to the low single-digit gap this quarter. You touched on the weakness in the nontracked channels that might be driving that. So is this gap something we should expect as we move forward here? Garth Hankinson: Yes. So just on shipments and the depletions. On a full year basis, we expect shipments and depletions to be largely aligned. That -- you heard that correctly. As it relates to the gap between Circana and our depletions, look, I'll tell you what we say sort of every time we have this call, which is, we don't use the Circana data to track our depletions. Obviously, we know that that's the data point that you have to use but there are certainly limitations to Circana. Certainly, it only captures about 50% of our sales activity. And so that's something that you have to take into account. And there's been a lot of volatility, obviously, over the course of the last several years regarding that gap and how wide it has gotten. And for those questions as to what drives that gap, those are best suited for Circana and not necessarily answered by us. Operator: Next question is coming from Steve Powers from Deutsche Bank. Stephen Robert Powers: I wanted to go back to the discussion on CapEx that Kaumil had begun earlier in the call. In your answer there, you highlighted the modular nature of ongoing expansions and I guess, therefore, the -- effectively the discretion you have over CapEx. And I think that's intuitive with respect to expansions in Northern Mexico. But I guess my impression of Veracruz commitments is that they're a bit more fixed. So could you talk about whether that is correct or not? And then maybe more generally, just how much of the beer CapEx you've outlined from here, how much of that would you frame is like truly discretionary through fiscal '28? William Newlands: So let me answer the first part of that. Yes, we are expecting to open Veracruz, as Garth noted, in roughly 18 months, a little less, which is right on schedule with what we had anticipated. That has all been mapped into what our anticipated supply requirements are. My point about modular was, if we need to add more going forward at Veracruz or at Obregon, as an example, we might -- we can speed up or slow down additional capacity expansions as need be, going forward. I think that's the beauty of where we are today versus at a time several years ago, where frankly, we were just trying to keep up with demand. We're in a much better position today that allows us to move forward with capital expenditures against building out our facilities in conjunction with what we see the business delivering. Garth Hankinson: I think the only thing I'd add to that, Bill, is just as you think about Veracruz and the fact that it will come online in the time frame in which we were previously discussing, it's important to note that the first module that comes online at Veracruz is only 3 million hectoliters. So it's a relatively small piece of the overall production footprint. Operator: We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Bill for any further closing comments. William Newlands: Great. Thank you, operator, and thank you all for joining today's call. In closing, while in the third quarter, we continued to manage a softer consumer backdrop due to macroeconomic headwinds, the growth of our beer business still outperformed that of the total beverage industry. And as a company, we also outpaced the total CPG sector, both on a dollar sales basis. Furthermore, we also continued to consistently deliver against our capital allocation priorities, including returning another $220 million to shareholders in buybacks in Q3, which brings our total year-to-date cash returns through share repurchases to approximately $670 million. Looking ahead, we have prudently lowered our growth outlook for fiscal '25 given the near-term uncertainty on when consumers will revert to more normalized spending. However, we continue to expect another solid year with our revised comparable EPS range still delivering double-digit growth from the midpoint and above, underpinned by our continued progress against the key growth drivers of our beer business and our proactive actions to improve the performance in wine and spirits. And with that, we wish you all happy New Year and thank you again for joining the call. Operator: Thank you. That does conclude today's conference call and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

Operator: Hello, and welcome to the Constellation Brands' Q2 Fiscal Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Senior Vice President, Investor Relations, Joe Suarez. Please go ahead, Joe. Joseph Suarez: Thank you, Kevin. Good morning all, and welcome to Constellation Brands's Q2 fiscal 2025 conference call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors which may impact forward-looking statements made on this call. Following the call, we'll also be making available in the Investors section of our company's website a series of slides with key highlights of the prepared remarks shared by Bill and Garth in today's call. Before turning the call over to Bill, in line with prior quarters, I would like to ask that we limit everyone to one question per person, which will help us to end our call on time. Thanks in advance. And now, here's Bill. Bill Newlands: Thanks, Joe, and welcome to our Q2 fiscal 2025 earnings call. As usual, I'd like to start with a few key highlights for the quarter. First, while the current macroeconomic backdrop weighed on demand for beverage alcohol and, more broadly, across consumer packaged goods, we continue to deliver strong performance in the marketplace driven by our consumer-centric strategy and thoughtful approach to brand building. At a total company level, in Circana tracked channels over the 12 weeks ending September 1, we held the number one spot for both dollar sales growth and share gains within all beverage alcohol. And more notably, we once again achieved dollar sales growth outpacing the total CPG sector as we continued to build on our track record of over a decade as a CPG growth leader. Second, our Beer business remained the clear winner across the total beverage industry, having significantly outperformed in dollar sales growth and, of course, maintained its leading share-gaining position in the U.S. beer category. Third, and continuing with our Beer business, we delivered another quarter of significant margin expansion, supported by disciplined operational and financial management. Importantly, our cost savings and operational efficiency initiatives are delivering significant incremental benefits for our Beer business beyond what we had anticipated at the start of fiscal 2025, which are now enabling incremental marketing investments in our largest beer brands as of Q3. Fourth, our relentless focus on winning in the marketplace, delivering top-tier growth and driving efficiencies supported another quarter of double-digit increase in comparable EPS in line with our full year outlook. Our strong earnings performance and, in turn, significant cash generation enabled us to achieve a pivotal milestone of our capital allocation priorities, having reached a 2.9 net leverage ratio on a comparable basis in Q2, slightly below our approximate three times target. And equally important, consistent with those same priorities, we also returned nearly $250 million of cash to shareholders through share repurchases in Q2, bringing our total year-to-date cash returns through repurchases to approximately $450 million, while continuing to pay our dividend and advance our brewery investments in our Beer business. All in, as we noted a few weeks ago, while ongoing macroeconomic headwinds, particularly rising employment, have led to a recent deceleration in the rate of growth of consumer demand for our products, we remain on track to deliver another solid fiscal year and continue to create value for our shareholders. With that, let's turn more fully to our Beer business performance. During the second quarter of fiscal 2025, our Beer business continued to deliver strong financial performance with net sales and operating income growth of nearly 6% and 13%, respectively. As noted earlier, these increases were primarily supported by solid volume growth and carryover pricing from last fall, as well as disciplined cost management and operational efficiencies. Our Beer business grew shipments by 4.6% in Q2, while depletions were up 2.4%, which includes the impact of one less selling day. It is important to reinforce that the Q2 performance of our Beer business was accounted for in the updated expectations we shared for fiscal 2025 four weeks ago. Now, honing in on the performance of our largest brands, Modelo Especial grew depletions by nearly 5% and upheld its position as the top share gainer, further extending its lead as the number one beer brand in U.S. tracked channels. Corona Extra depletions declined approximately 3%. However, it remained a top five beer brand in dollar sales in the U.S. and continued to gain dollar share in the category. Pacifico delivered another quarter of remarkable depletion growth of nearly 23% and remain the number four dollar share gainer across the total Beer category. Our Modelo Chelada brands delivered an increase of approximately 2% in depletions and our Limón y Sal flavor remained a top 15 overall dollar share gainer in the category. As noted earlier, our Beer business also maintained the momentum of its significant operating leverage gains, driving 2.7 percentage points of operating margin expansion year-over-year. As mentioned earlier, we are pleased to be deploying incremental marketing investments across our largest beer brands in the second half of fiscal 2025 as our cost savings and efficiency initiatives have delivered results above our initial expectations. Looking ahead more broadly, consistent with our recent outlook update, we continue to expect our Beer business to deliver net sales growth of 6% to 8%, operating income growth of 11% to 12%, and an operating margin of approximately 39% in fiscal 2025. Moving on to Wine and Spirits, as noted a few weeks ago and our full year guidance update, we continue to face incremental category headwinds in our Wine and Spirits business, particularly in the lower-priced segments. This affected both the performance of Wine and Spirits in this latest quarter and our fiscal 2025 outlook for that business. In Q2, the impact of these category headwinds largely drove Wine and Spirits shipments down 9.8% year-on-year while in turn was the primary driver of the respective 12% and 13% declines in net sales and operating income for that business. Against that backdrop, the business remains focused on continuing to advance the operational and commercial execution initiatives identified at the end of our last fiscal year to improve the performance of our largest Wine and Spirits brands. Encouragingly, we saw some green shoots in Q2 across our largest higher-end wine brands, Kim Crawford, Meiomi, The Prisoner as tactical pricing and marketing support actions we are taking in select markets began to drive better consumer takeaway trends. So we plan to continue these actions through the remainder of the year to drive further improvements in this select group of our most scaled higher-end offerings, which ultimately underpins the sequential improvement we expect in our Wine and Spirits business over the second half of fiscal 2025 for our updated outlook. Also notably, our Craft Spirits portfolio, albeit smaller and scale continues to be a positive driver for the business, delivering strong depletion volume growth as well as high single-digit dollar sales growth in Circana U.S. tracked channels, significantly outperforming the low single-digit growth rate of the higher-end spirits segment. Looking ahead for our recent updated fiscal 2025 outlook, we expect the Wine and Spirits business to ultimately deliver for the full year net sales and operating income declines of 4% to 6% and 16% to 18%, respectively. Lastly, we usually take this opportunity in our Q2 call to bring your attention to the upcoming release of our annual ESG impact report every October. That said, going forward, we'll be publishing this report under the same time line as our other fiscal year-end materials. This shift in timing will help ensure better alignment between our most recent and relevant full financial year updates and these related to our efforts to address pressing environmental and societal needs that are important to our business and our stakeholders ahead of our annual meeting. We look forward to sharing progress and updated targets in a few quarters. So in closing, while our sector is facing less favorable consumer demand due to macroeconomic headwinds, we delivered another quarter of strong financial results underpinned by the continued solid net sales growth and significant margin expansion of our Beer business, ultimately achieving our second quarter double-digit comparable EPS growth in line with our full fiscal year expectations. In addition, we continue to build on our leadership position within consumer packaged goods and the total beverage industry, outperforming in dollar sales growth across Circana tracked channels. And we remain steadfast in delivering against our disciplined and balanced capital allocation priorities, achieving a two times net leverage ratio on a comparable basis, slightly below our stated approximately three times target, while also returning nearly $250 million to shareholders through share repurchases in Q2, as well as continuing to pay our dividend and advance our brewery capacity investments. And with that, I will turn the call over to Garth, who will provide more details on our financial results and outlook. Garth? Garth Hankinson: Thank you, Bill, and good morning, everyone. As usual, my discussion of our Q2 fiscal 2025 performance will focus mainly on our comparable enterprise results accompanied by business segmented analysis. Let's get started with our enterprise results. For the quarter, enterprise net sales grew 3%, while enterprise operating income decreased 226% on a reported basis and increased 13% on a comparable basis. The increases in enterprise net sales and enterprise comparable operating income were driven by strong results from our beer business, which were partially offset by ongoing category headwinds affecting the performance of our wine and spirits business, both of which I will address in more detail shortly. The decline in reported enterprise operating income reflects a non-cash goodwill impairment loss for the Wine and Spirits business of $2.25 billion. As noted in our updated guidance last month, we now expect enterprise net sales to grow between 4% to 6% for fiscal 2025 and for enterprise comparable operating income to grow 8% to 9% for the full year. At an enterprise level, we remain confident in our ability to deliver against our initial double-digit comparable EPS growth expectations, as demonstrated by our decision to raise at the lower end of our full-year comparable EPS outlook during our recent guidance update, with that range now set at $13.60 to $13.80. Now I'll turn to a more detailed review of our Q2 fiscal 2025 results. To start, our Beer business net sales grew by 6%, representing an uplift of $137.5 million. This was driven by Beer shipment volume growth of 4.6% and favorable pricing, which added $50.2 million to the overall net Beer net sales increase. For the full fiscal year, we continue to expect pricing to account for 1% to 2% of our net sales growth, reflecting both the muted pricing from the first half of this year, which was driven by lapping outsized pricing from last year, as well as targeted price actions we are taking in the second half of fiscal 2025. Beer depletions grew 2.4%, marking our 58th consecutive quarter of growth. As a reminder, in the second quarter, we had one less selling day, and the impact of a selling day variance to our volume growth performance has historically been between 0.5% to 1.5 percentage points, depending on the day a week lost or gained. Also, as Bill noted, Beer depletions for the quarter were impacted by the recent challenging macroeconomic backdrop, where rising unemployment rates have impacted consumer behavior. That said, we are pleased to have had our Beer business once again outperform the category and sector in dollar sales in the second quarter, and in particular, to have once more won the 4th of July holiday as the top share gaining supplier in Circana dollar sales, growing 5.1% and gaining 1.2 share points of total Beer and 1.3 share points of high-end Beer. Our on-premise depletions grew 5% and accounted for approximately 11% of our total volumes. Corona Extra remains the number one packaged Beer by dollar sales in the on-premise, while Modelo Especial continues to hold its number four beer position on draft in the U.S., up from the number five spot last fiscal year. For the second quarter, Beer shipment growth outpaced depletion growth as distributors proactively managed inventory levels to supply the higher-volume summer season. For the full fiscal year, we expect absolute shipment and depletion volumes to be closely aligned with each other, and for the quarterly share of full-year volumes across both of those metrics to be in line with those of fiscal 2024. As we look ahead to the balance of the fiscal year for the Beer business, I'd like to take a moment to reiterate our updated outlook announced last month. Beer net sales are now expected to grow between 6% to 8% for fiscal 2025, reflecting the incremental macroeconomic headwinds we have seen this year affecting the consumer as noted earlier. We believe these headwinds are transitory in nature. And while our consumers are cautious, they also remain very loyal to our brands as they seek more value-oriented packs and channels to manage their spend in this environment. We are focused on managing the levers that we can control and continue to advance our cost savings and efficiency initiatives that allow us to accelerate incremental marketing investments toward our Beer business to drive top line growth. We remain confident in our overall growth profile, which again continues to outperform our sector and industry as we pursue further incremental points of distribution in the U.S. and push forward with our focused and disciplined innovation agenda while building on the broader demographic tailwinds from our loyal Hispanic consumers. I'll now turn to Beer operating income and margins. The Beer segment grew operating income by 13% and had a 270 basis point increase in operating margin to 42.6%. The strong performance in our beer operating income is largely the result of an over $65 million benefit from our ongoing cost savings and efficiency initiatives, partially offsetting an increase in COGS of 4%, excluding these savings but inclusive of the impact of the volume and foreign currency. As a reminder, approximately 25% of our total COGS are exposed to the Mexican peso and we are approximately 90% hedged against that exposure for the fiscal year. For the remainder of fiscal 2025, we anticipate incremental COGS relative to net sales due to lower fixed cost absorption from normal volume seasonality. That said, it is important to recall that in Q4, we will lap the VAT write-off from the same period last year, which will provide some favorability year-over-year but will not offset the sequential impact of lesser fixed cost absorption due to seasonally lower volumes. Marketing expense as a percentage of net sales was 7.6% for the quarter. For fiscal 2025, we are still on track to be in line with our full year expectation of approximately 8.5% as we continue to ramp up investments to support our core brands and during the NFL and college football season, particularly in Q3. Other SG&A expense was 3.8% as a percentage of net sales. And we expect this ratio to increase in the second half of the year, largely due to lower volumes yielding less cost absorption. This is in line with our expectation and we continue to anticipate our full year SG&A expense to be approximately 5% of net sales. Overall, for Beer operating margins, we continue to expect to be at approximately 39% for fiscal 2025. As just noted, we expect lower fixed cost absorption and incremental marketing investments to drive sequentially lower operating margins in the second half. Moving on to the Wine and Spirits business. Net sales for the segment declined 12% in the second quarter, driven largely by a 9.8% decrease in shipments. The decline was largely driven by ongoing challenges in the wine category, particularly in the U.S. wholesale marketplace due to both weaker consumer demand and retailer inventory destocking. Accordingly, we remain focused on the ongoing tactical pricing and marketing actions shared at the beginning of this fiscal year to help drive net sales improvement in the performance of our largest brands. As Bill noted, we are seeing some encouraging early results from these actions. And as a reminder, we continue to see the back half of the fiscal year as the higher volume period for our Wine and Spirits business, due to historical seasonality related to vintage releases from our higher-end brands and incremental demand over the holiday season, as well as incremental benefits from the initiatives just referenced. Operating income for Wine and Spirits business remained relatively flat with a decline of approximately $10 million, resulting in an 18.1% operating margin. Altogether, the decline in operating income and relatively stable margin performance were primarily impacted by unfavorable product mix and overall lower shipment volumes, partially offset by higher contractual distributor payments. Our marketing expense as a percent of net sales was 9.3%, which is slightly above our medium-term targets, as we continue to make near-term investments in our largest brands to help support our top line. And SG&A as a percentage of net sales was 14.8%, coming in line with our medium-term outlook. Looking forward to the remainder of the year for the Wine and Spirits business, we expect operating margins to benefit from mix benefits due to the previously noted seasonally driven increase in volumes for our higher-end brands, incremental volume benefits from the commercial execution initiatives also previously referenced to further support demand for our core brands, and operational efficiency and cost savings actions similar to those being executed in our Beer business. As we face ongoing operating deleverage due to larger top line headwinds, we anticipate a full year 16% to 18% decline in operating income for our recently revised fiscal 2025 guidance. Capping off the rest of the P&L. Corporate expense for the quarter was approximately $58 million, reflecting a year-over-year decrease of $8 million or 13%, driven by a one-off real estate tax benefit in the second quarter. In the back half of fiscal 2025, we expect a marginal increase mainly due to the increase in compensation and benefits and digital capabilities investments. And for the full year, we continue to expect $260 million. Interest expense for the quarter was $104 million, a 6% decrease from the prior year due to lower average borrowings and an increase in capitalized interest from our investments in our breweries. As noted in our previously updated guidance, interest expense for the fiscal year is now expected to be approximately $430 million, as we see favorability from lower cost of borrowing and adjustments related to capitalized interest. Our comparable effective tax rate was 18.7%, compared to 17.8% for the corresponding quarter last year. And we continue to expect our full year tax rate to be 18.5%. And finally, free cash flow, which we define as net cash provided by operating activities less capital expenditures. For the first half of fiscal 2025, we generated free cash flow of $1.2 billion, a 12% increase from the prior period. As a reminder, we expect free cash flow to be between $1.4 billion and $1.5 billion for the fiscal year as we reached the high watermark year of capital expenditures in our Beer business medium-term outlook provided at our Investor Day. Beyond fiscal 2025, we continue to expect an uplift in free cash flow generation, particularly as we complete the initial phase of our new Veracruz Brewery by late fiscal 2026 or early fiscal 2027. To conclude, we continued to make solid progress in delivering growth from our strong portfolio of brands, margin expansion from our relentless pursuit of operational efficiency and cost discipline, and against our disciplined and balanced capital allocation priorities. That said, in light of constantly evolving macroeconomic and geopolitical dynamics, we continue to closely monitor for any signs of ongoing pressures on the consumer and we plan to continue to take proactive actions to mitigate these possible headwinds and maintain the momentum of our brands with the consumers, such as reinvesting incremental cost savings into high-return marketing opportunities and advancing our price pack architecture efforts. And as we've always done, we will continue to provide timely updates to our stakeholders as we develop any additional relevant insights on our consumers or should there be any material changes to our expectations, both favorable or unfavorable. As I wrap-up, I want to thank all of you for your support as we continue to execute against our stated initiatives. And with that, Bill and I are happy to take your questions. Thank you. Operator: [Operator Instructions] Our first question is coming from Kaumil Gajrawala from Jefferies. Your line is now live. Kaumil Gajrawala: Hi guys. Good morning. Congrats you hit your leverage target. Can you maybe talk about moving forward, now that you're there, what the appetite is for more aggressively repurchasing shares, especially as, using your words, you hit sort of the high-water mark on CapEx? And then just maybe procedurally, how often does the Board meet to have those discussions? Is it ongoing or just kind of once a year? Thanks. Garth Hankinson: Thanks Kaumil and as you suggested and as were in Bill's and my remarks, we did continue to deliver against our disciplined allocation priorities as we've done for the last year -- or last five years in Q2. As you noted, in Q2, we hit an important milestone, which is we got at our target or slightly below our target. And throughout the first half of the year, we've been fairly opportunistic as we've repurchased shares. In fact, we accelerated our repurchase activity in Q2, delivering $249 million in Q2 after delivering -- or $200 million in Q1, for a total of nearly $450 million through the first half of the year. We have $2.2 billion of authorization left under the current authorization provided by the Board, which will allow us to continue to be opportunistic as we move into the second half of the year. And per your sort of procedural or administrative question, we typically get additional authorizations and/or announce any incremental programs or commitments in the back half of our fiscal year. Operator: Thank you. Our next question is coming from Dara Mohsenian from Morgan Stanley. Your line is now live. Dara Mohsenian: Hi good morning. So, just on beer depletions in the quarter, a bit softer result than we've been used to from you guys looking back over the past few years. Just can you give us a bit of postmortem there? Obviously, you talked about the macro factors. Is that really the key factor in your mind? Or are there other pressure points? And maybe parse out trends in different key consumer segments for you to give us some insight there. And then the pickup so far in September, that's obviously scanner data, just put that in context and how that sort of informs your forward view from here around depletions in this macro environment? Thanks. Bill Newlands: Sure. Let me tackle that one. First of all, there were two or three factors that were critically important in Q2. One is there was somewhat higher unemployment rate, particularly in the Hispanic market. And that affects most of our top five states, which represent roughly 50% of our volume. I think, secondly, and if you look historically, this often happens, whenever there is a scenario where you have a federal election that is close, you often have people pull back. You see it across the whole consumer sector, and that is consistent as well. I think a couple of things are important to recognize. One is demand. Our buy rate continues to be very strong. On a 52-week basis, we are up mid-single digits, with the Hispanic consumer is slightly ahead of that. You point out, I think it's obvious, in IRI Circana data, the four-week trend is better than both the 12-week trend and the 26-week trend. I think this is consistent with what we've said all along, which is we don't see this as any radical change in the long-term perspective on the business. It is purely a near-term issue. I think the fact that the Fed has reduced rates is going to help to manage the unemployment issue and stimulate consumption. So we remain as optimistic as we have been about our expectations for the back half of the year. Operator: Thank you. Next question is coming from Bonnie Herzog from Goldman Sachs. Your line is now live. Bonnie Herzog: Hi. Thank you. Hi, everyone. I had a question on your increased space and distribution gains. I know you've captured a lot of space in the spring reset. So I guess curious to hear if the lift from that has met your expectations. And then also, any color on potential shelf space gains you got or maybe getting this fall? And if so, could you maybe quantify this and really share with us how that factors into your full year Beer top line growth guidance, which essentially implies top line growth should accelerate a little bit in the second half versus the first half? Thank you. Bill Newlands: Well, obviously, any time you pick up shelf -- and just to remind everyone on the call, we had double-digit share gains here in the spring resets, that always is beneficial. And it's particularly beneficial in areas where we are still radically improving our share and increasing our awareness levels. I think this is going to be doubled-down, Bonnie, on the fact that we are spending a significant amount of increased marketing investment against our Beer brands because of the strong cost and efficiency initiatives that we've been able to achieve above and beyond what we expected at the beginning of the year. So we expect that, therefore, those shelf initiatives that have occurred in the early part of the year, combined with our marketing efforts to double down at a time when many in the consumer sector having to pull back will be highly beneficial to our results as you continue through the rest of this year. Operator: Thank you. Next question is coming from Nik Modi from RBC Capital Markets. Your line is now live. Bill Newlands: Hello Nik. Operator: Nik, probably your phone is on mute. Nik Modi: Can you hear me? Bill Newlands: We can now. Nik Modi: Yes. So if you could just talk about Corona. It was a little weaker in the quarter. Is this a function of just Modelo really doing better and maybe cannibalizing maybe Pacifico? Just any thoughts around that would be helpful. Bill Newlands: Yes. Corona was slightly softer than we expected it might be in Q2. But as we noted, there were some, again, macro factors. Corona is a little overweighted to the East Coast. There were some challenging times during that window -- during the second quarter for many of the Eastern markets. With that said, there's a lot of excitement around Corona as well. We are already seeing a pickup, as you've seen in the IRI takeout data, Corona has, much like our overall business, has looked much better on a 4-week basis than it did in the prior window of time. We're very excited about the impending launch of Corona Sun brew, which has done very well in consumer testing in the Northeast here during this window of time. So we continue to say that Corona is going to be slightly up for the year. We still think that's probably where that will land. And Corona is going to be one of the big benefitees in the increase in the marketing spend that we have in the back half of the year because of our strong cost efficiency initiatives. So I think Corona is going to be just fine as we continue through the remainder of the year. Operator: Thank you. Our next question is coming from Andrea Teixeira from JPMorgan. Your line is now live. Andrea Teixeira: Thank you, operator and Hi Bill and Garth. It seems like, obviously, beer volumes picked up in the last few weeks, as you mentioned. I was hoping to see if you can comment a little bit on how to expect the beer depletions against consumption as we unfold. Of course, you have an extra day in the fourth quarter, if I believe that's correct. But you also have -- you have easier comps now in the third quarter, but tougher comps in the fourth quarter. So how we should be thinking about cadence of beer shipments and depletions as we move forward? Thank you. Bill Newlands: Yes. I think there's going to be another number of things that work to our advantage as the year progresses. One is, and you already pointed it out, there's been incremental change that you've seen in the recent weeks. We do not see it this is a structural change, as we've said many times, a number of things are going to be working better as we go forward. The fact that the Fed action to reduce rates, I think, is going be a big help. I think the fact that we expect Hispanic unemployment to come back in line, and obviously, the resolution of the election will occur here in the next several weeks. The other thing I'd point out, and we've said this, and I'm sure Joe has said this when you've spoken to him directly, beer depletes and scanner results have tended to be right on top of one another recently, after there having been some fairly broad differentiation amongst those. So I think that begins to be -- begins to be a little more consistent as you go forward through the rest of the year. Based on our assessment, the sell days are the same at both Q3 and Q4, we don't expect any impact of that. Just a reminder for everybody, Q2, there was 1 less selling day, and in our judgment, that probably impacted somewhere toward the upper end of the range that Garth mentioned during his conversation. Operator: Thank you. Next question is coming from Peter Grom from UBS. Your line is now live. Peter Grom: Yes. Thanks. Thank you, operator. Maybe just two quick follow-ups. I just want to follow-up. Just in the context of what we've seen year-to-date with shipments coming in ahead of depletions and the expectation that they're going to be aligned for the year, how should we be thinking about the timing of that reversal? Would that be largely in 3Q or spread evenly in the back half of the year? And then just thinking about the full year, obviously, you're kind of squarely at the midpoint of your sales guidance. But with shipment timing benefits expected to reverse a bit, should we kind of view the high end of Beer top-line range as aspirational? Or are there other key drivers or offsets that could result in stronger growth in the back half? Thanks. Garth Hankinson: Thanks, Peter. In terms of the sort of quarterly cadence, the shipments and depletions. As we noted during my opening remarks, we expect the quarterly share of annual shipments and depletions to be in line with where they were fiscal 2024. And as noted, and you noted, Q2 shipments surpassed depletions as distributors build inventory for the peak season. In Q3, the shipment share will be lower than the depletion share due to maintenance activities. And this has historically resulted and our shipment growth being below depletion growth. So you will see some of that reversal that you referenced, in Q3. And then in Q4, both the share of the full year for both of those tend to normalize just as we saw last year. So net-net, as you indicated, we expect, on a full year basis, shipments and depletions to be largely in line with one another. Bill Newlands: And I would say, I would not necessarily agree with your aspirational comment. What we try to do with our range is provide a range that gives us, if things go positively, we would expect to be to the upper end of the range. And if things are a bit more challenging for any reason, it might be the lower end of the range. That's why we give it a range. So I would not characterize it in the way you asked it. . Operator: Thank you. Next question is coming from Michael Lavery from Piper Sandler. Your line is now live. Michael Lavery: Thank you. Good morning. I was hoping you could unpack some of the marketing color a little bit. You talked about some of the incremental spending. But then I think you also reiterated the 8.5% spend for the full year for beer. So maybe can you just help us understand what's new or what's changed and how we should we should -- what expect to see? Bill Newlands: Yes. What's new and what's changed is we've decided to put a significant amount of additional investment against our brands. Corona, Modelo, Chelada, Pacifico will all benefit from some of that increased spend. And that's already started. You may have noticed against the football schedule that you kind of can't miss our brands if you happen to watch any football, whether it be college football or National Football League. So we're going to continue to do that because of the tremendous work that's been done around cost and operational efficiencies. And all of our critical brands are going to benefit from the uplift that we will have in the back half of the year. And I think it's important to point out, the reason we can do that is because of the growth of our business and the cost savings initiative. This is at a time when many, many other consumer businesses are challenged and wouldn't be able to do this. I think this is a great opportunity for our business in the back half of the year to double down on our approach to going after the consumer and providing them with outstanding opportunities to consume our products. Operator: Thank you. Your next question is coming from Filippo Falorni from Citi. Your line is now live. Filippo Falorni: Hi. Good morning, everyone. I wanted to ask on Beer gross margins. That's been an area of upside surprise versus our estimates. Clearly, you talked about the cost savings coming in better and driving the opportunity to invest more behind the brand. How should we think about those savings in the second half of the year, and maybe other drivers, both from a commodity and foreign exchange standpoint, you mentioned the pay so you're 90% hedged this year this year. Should we think maybe some vulnerability on the pays on Q4 and maybe into fiscal 2026? And then on the commodity side, maybe any update on the commodity headwinds that you're expecting? Thank you. Garth Hankinson: Yes. Well, thank you for the question. And as you noted, we've made very good progress against our cost savings and efficiency initiatives. And we've -- at this point we've really hit that $300 million target that we laid out at our Investor Day last year. Obviously, that doesn't mean we'll stop there. As we go forward, we'll continue to identify areas of opportunity to take costs out of the business, become more efficient, as we always have done. But those -- the acceleration of the achievement against those has helped lead to the margin profile that we announced today. As we look towards the second half of the year, we will continue to benefit from the cost savings that we generated through the first half of the year. That being said, in the second half of the year, in the Beer business, we typically see about 45% of our volume, so the normal cadence. So we will have less fixed cost absorption in the second half of the year. Again, typical in what we'd see in the back half of every sort of normal year. And then, as we said in the opening remarks today, we are spending more on as a percent of net sales and marketing in the second half, we're going to support the growth of the business, inclusive of the incremental marketing expenditure that Bill just spoke to here a moment ago. And that's why you'll see some -- you'll see the margin be a little bit lower in the second half of the year. Importantly, on that marketing, you'll see the biggest impact of that in Q3. Operator: Thank you. Next question is coming from Robert Moskow from TD Cowen. Your line is now live. Robert Moskow: Hi. I want to ask about Wine and Spirits. The marketing plans that you had this year it looks like it's been slow to materialize, although you did mention some green shoots. And I wanted so if the plan going forward also includes more acquisitions. You had Sea Smoke acquisition earlier this year. Do you think that you need to make more acquisitions of up and coming brands like this in order to truly turn around the business? Bill Newlands: Yes. Thanks for the question. So, let me remind you what Garth and I said at the beginning of the fiscal year, that a lot of the work that was put in place was going to take us 9 to 12 months to fully play out. And as we said on today's call, we expect sequential improvement in the Wine and Spirits business in the back half of the year. The answer to your question, no, I don't perceive us to be acquiring additional properties at this point in time in our -- particularly on the wine side of our business. Frankly, our focus right now is on improving the operational performance of that business. And all the time, energy and efforts are being put against seeing that operational improvement play out in the back half of the year, including engaging more directly and more often with our distributor partners as part of that. As we've said, and I'll just reiterate one more time, we do expect to see sequential improvement in the back half of the half of the year based on all the work that's been put in on the first the year to see that coming along. Noting the point about green shoots, we are starting to see some of that result. We look forward to seeing more of it in the back half. Robert Moskow: Thank you. Operator: Thank you. Our final question today is coming from Bill Kirk from ROTH Capital Partners. Your line is now live. Bill Kirk: Hi. I have another one on Wine and Spirits. At fiscal year-end, the fair value was still estimated, I think, in the 10-K at about $3 billion. The impairment takes it down to like $500 million. So I guess why the dramatic change in such a short time? Why is $500 million the right number when it's generating $400 million in EBITDA and there's some green shoots out there? And then finally, like does the impairment give you any flexibility to do something strategically with those assets? Garth Hankinson: Well, thanks for the question, Bill. I would say that the amount that remains on the balance sheet is -- it's fairly formulaic as you go through what you think the future business will look like, there's a number of assumptions that will go into that. And so it's -- I think it's important to note that it's non-cash as well. I wouldn't read anything too much into it other than that. And I don't know that it really has any impact other than it was an accounting requirement for us to take -- it doesn't really change the strategic outlook for the business. Operator: Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments. Bill Newlands: Great. Thank you, operator, and thank you all again for joining today's call. We're very pleased with our solid performance in Q2 of fiscal 2025. At a total company level, we once again outpaced the total CPG sector in dollar sales growth across Circana tracked channels and delivered another quarter of double-digit comparable EPS growth in line with our full year outlook, and achieved our approximate three times net leverage ratio, while returning another $250 million of cash to shareholders via share repurchases, now totaling nearly $450 million fiscal year-to-date. In our Beer business, we continued to outperform the total beverage industry in dollar sales growth, maintaining our leading share gainer position in the U.S. beer market, delivering our 58th consecutive quarter of depletion growth, and sustained the momentum of margin expansion in the Beer business through our cost savings and operational efficiency initiatives. And in our Wine and Spirits business, while we continued to face challenging market dynamics in Q2, we expect sequential improvements in Q3 and Q4 as we make further progress on our commercial and operational execution initiatives launched at the beginning of this fiscal year. In closing, as our next earnings call is not until January, I'd like to wish everyone a happy holiday season and hope you will enjoy your celebrations with some of our fantastic products. Thanks again for joining today's call. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time. And have a wonderful day. We thank you for your participation today.

Operator: Good morning, and welcome to the Constellation Brands First Quarter Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Joseph Suarez, SVP of Investor Relations. Thank you. You may begin. Joseph Suarez: Thank you, Daryl. Good morning, all, and welcome to Constellation Brands Q1 fiscal '25 conference call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements made on this call. Following the call, we will also be making available in the Investors section of our company's website a series of slides with key highlights of the prepared remarks shared by Bill and Garth in today's call. Before turning the call over to Bill, in line with prior quarters, and as Daryl mentioned, I would like to ask that we limit everyone to one question per person which will help us to end our call on time. Thanks in advance and now here's Bill. Bill Newlands: Thanks, Joe, and welcome all to our Q1 fiscal '25 earnings call. I'm pleased to say that we got off to a solid start in Q1. And as usual, I'd like to start with a few key highlights for the quarter. First, we continued to extend our position as a growth leader within consumer packaged goods, achieving an enterprise dollar sales increase 4.5 percentage points above that of the entire CPG sector. Let me repeat that. We achieved an enterprise dollar sales increase 4.5 percentage points above that of the entire CPG sector per the Circana tracked channel data for the 12 weeks ended on their May 19 quad week. This significant outperformance was largely driven by the continued growth of our Beer business, which attained the second largest share gain in the total beverage industry, as well as once again the top share gain in all beverage alcohol. This is for the Circana 12 weeks ended June 2, which most closely aligns with our quarter. Second, continuing with our Beer business. We delivered another strong quarter with high-single digit net sales increase driven by our Beer portfolio's 57th consecutive quarter of depletion growth, as well as significant operating margin improvement supported by our cost savings and operational efficiency initiatives. And, of course, all of this was aligned with our full year guidance and our medium-term outlook for the business. Third, in-line with our disciplined and balanced capital allocation priorities, which we have consistently delivered against for more than five years now, in the first quarter of this fiscal year, we did several things. First, we maintained our strong investment grade balance sheet and still expect to achieve our target 3 times net leverage ratio in fiscal '25. Second, we returned $185 million to shareholders in dividends and executed $200 million in share repurchases, plus we completed over $40 million more dollars of buybacks in June. Third, we continued to advance our latest brewing capacity addition at Obregon and new brewery development at Veracruz. And we are pleased to have executed the divestiture of our Mexicali site, which as a reminder was mainly the land building as we had already repurposed most of the equipment. Fourth, we executed the tuck-in acquisition of SeaSmoke to address white space and enhance asset utilization in our wine portfolio. And in parallel, initiated a potential sales process of a few wine and spirits non-core assets, including certain vineyards and facilities to better align our network and partially offset the acquisition cost. Staying with Wine and Spirits for a moment, while the performance of the business continues to face near-term challenges largely driven by broader category headwinds, we expect net sales and operating income improvements and our outlook for the fiscal year is unchanged. Lastly, all in, we drove comparable earnings per share growth of more than 17% and remain focused on achieving our stated full year guidance and medium-term target of low double-digit comparable EPS growth. With that, let's turn more fully to our Beer business' performance. We maintained the momentum in our Beer business during the first quarter of fiscal '25 with net sales and operating income growth of more than 8% and nearly 16%, respectively. As noted earlier, these increases were primarily supported by strong volume growth as well as cost and operational efficiencies. Our Beer business grew shipments by 7.6% in Q1 on a reported basis, while depletions were up 6.4% excluding the impact of the craft brand divestitures in June of last year. It is important to reiterate that this mid to high-single digit level of volume growth was fully aligned with the expectations we shared for our fiscal year, as well as our medium-term algorithm. So, despite the volatility of short-term scanner data, be it due to weather, timing of holidays or other non-structural factors or the performance of the broader beer category, be that due to dynamics affecting other brands or segments, our Beer team once again consistently delivered on our targets and objectives. Now honing in on the performance of our largest brands, Modelo Especial grew depletions by nearly 11% and upheld its position as the top share gainer, extending its lead as the number one beer brand in U.S. tracked channels. Importantly, Modelo Especial also continues to grow household penetration, rising to become the number three brand on this metric at the end of May, with a 2.4 percentage point increase on a 52 week basis. While Corona Extra depletions declined just over 1% in Q1, we continue to expect, we can deliver low-single digit growth from this brand. Importantly, Corona Extra remains a top five beer brand in the U.S. and it continues to gain share in the category. Pacifico delivered remarkable depletion growth of over 20% and was the number four dollar share gainer across the total beer category. Our Modelo Chelada brands delivered an increase of more than 5% in depletions and we are excited to continue to build on that momentum in fiscal '25 with two new flavors, Fresa Picante and Negra con Chile. More broadly, from an innovation pipeline perspective, the rollout of our two new Modelo Oro pack sizes is underway, as we continue to thoughtfully build out the brand using our disciplined approach after a successful national launch last year. In addition, the expansion of our Aguas Frescas variety pack to an additional 20 markets and the launch of Corona Sunbrew in select Eastern test markets are also advancing per our plans and we look forward to sharing more on these additions to our portfolio over the coming year. The strong execution of our Beer business in Q1 was also reflected in our ability to deliver significant operating leverage, driving 2.6 percentage points of operating margin expansion year-over-year. Looking ahead, we continue to expect our Beer business to deliver net sales growth of 7% to 9%, operating income growth of 10% to 12% and an operating margin of approximately 39% in fiscal '25. Moving on to Wine and Spirits. As noted earlier, we continue to face challenging dynamics in these categories, particularly across most of the wine price segments. These headwinds were the main drivers of the 7% net sales decline for that business in Q1. That said, our craft spirits portfolio achieved shipment volume growth of 14% as well as double-digit dollar sales growth in Circana U.S. track channels, significantly outperforming the low-single digit growth rate of the higher-end spirit segment. In addition, we continue to make good progress against the operational and commercial execution initiatives identified last quarter to support our efforts to improve the performance of this business in fiscal '25. The tactical investments in the 11 brands that represent 75% of net sales and over 80% of volumes for our Wine and Spirits business in fiscal '24 are now underway and we expect to see improvements in this select group of our most scaled offerings over the remainder of the year, ultimately underpinning the relatively stable net sales outlook for that business in fiscal '25. However, these incremental investments did have a near-term impact on the operating income, which declined 25% in the first quarter. That said, we also expect year-over-year operating income performance of our wine and spirits business to improve throughout the remainder of the year. And we continue to target Wine and Spirits operating income to be down 9% to 11% in fiscal '25. As we have noted previously, we remain committed to continuing to advance this business over the coming years towards the medium-term target shared in our Investor Day. Lastly, we continue to make-good progress against our ESG ambitions, having recently received TRUE Certification for Zero Waste at our Nava and Obregon breweries, marking a significant milestone in meeting our waste reduction commitment. And as a reminder last year, we also achieved our initial water restoration commitment one year ahead of schedule and we then set an ambitious target nearly 5 times the size of the original goal to be completed within the same timeframe of fiscal '23 to '25. So in closing, we once again delivered another quarter of solid performance driven by the continued strength of our Beer business and we expect to maintain this momentum throughout the rest of fiscal '25 and beyond as committed at Investor Day. Our Beer business continues to achieve strong volume growth, well above that of its category and total beverage alcohol. This outstanding performance supported the second largest dollar share gain within the broader beverage industry and reinforced our significant growth outperformance relative to the entire CPG sector. Our Wine and Spirits business is making progress against the operation and commercial execution initiatives identified last quarter to support its trajectory for this year's guidance. All in, we continue to advance toward our enterprise wide financial targets, including the delivery of double-digit comparable EPS growth, while upholding our disciplined and balanced capital allocation priorities from the last five years, which so far this fiscal year has also included the return of over $240 million to shareholders in share repurchases through June. And with that, I turn the call over to Garth. Garth Hankinson: Thank you, Bill, and good morning, everyone. As usual, my discussion of our Q1 fiscal '25 performance will focus mainly on our comparable Enterprise results accompanied by business segment details. Starting with our Enterprise net sales, we delivered top-line growth of 6% for the quarter, in line with our full year expectations and our medium-term outlook for our Investor Day targets. As anticipated, this strong growth was driven by our Beer business, which I will elaborate on shortly. For fiscal '25, we continue to expect Enterprise net sales to grow between 6% to 7%. Enterprise operating income increased 23% and 12% on a reported and comparable basis, respectively. This resulted in a 35.4% operating -- reported operating margin and a 180 basis point year-over-year increase in comparable operating margin to 34.7%. While we delivered very strong operating income growth in the first quarter, again driven by our Beer business, we continue to expect Enterprise comparable operating income growth of 8% to 10% for the full year. At an Enterprise level, we also remain on track to achieve our full year comparable EPS guidance of $13.50 to $13.80, having delivered comparable EPS of $3.57 for the first quarter. As a reminder, our full year comparable EPS guidance represents a 10% increase year-over-year using the mid-point of our range. Importantly, these comparable EPS results and expectations are also consistent with our medium-term annual low double-digit comparable EPS growth target we outlined at our Investor Day last November. Now, turning to the more detailed discussion of the underlying drivers of our Q1 performance. Starting with our Beer business, the segment is off to a great start in fiscal '25. Our Beer business grew depletion volumes by 6.4%, excluding the impact of last year's craft brand divestitures, which will be the basis of our depletion figures this year to eliminate any sequential distortions from lapping periods without the craft brands. This reflected the solid consumer demand during the quarter, as well as the strong execution and performance during the key Cinco de Mayo and Memorial Day holidays. As usual, we led Cinco de Mayo and we are pleased to have once again won the Memorial Day holiday as the top share gaining supplier in Circana dollar sales, growing 6.3% and gaining 1.6 share points of total beer and 1.8 share points of high end beer. Modelo Especial was the top share gaining brand, picking up 1 share point and we had a total of five out of 15 top share gaining brands. Our on-premise depletions grew 2% as we continued to capture tap handles and gain share as demonstrated by Modelo Especial, shifting up one spot to now be the number four beer on draft in the U.S. Beer shipment volume for the quarter increased 7.6% and ran slightly ahead of depletions on both a growth rate and on an absolute basis. This is aligned with our usual seasonality as distributor and retailers prepare for the peak summer season. That said, from a full year perspective, we continue to expect absolute shipments and depletion volumes to closely align with each other. And in terms of the quarterly cadence of our volumes in fiscal '25, we still anticipate the quarterly share of full year shipment volumes and depletion volumes to be largely aligned with that of fiscal '24. Lastly, regarding selling days for our Beer business, they were flat for the first quarter of fiscal '25. For the balance of the year, we will have one less selling day, which will occur in Q2. In addition to the shipment volume growth, we realized pricing benefits of less than 1% due to lapping the wrap-around impacts of the pricing actions we took in the fall of calendar year 2022, which were above our normal pricing algorithm. Altogether, volume growth combined with price/mix benefits drove net sales growth of more than 8% for our Beer business. As we look towards the balance of fiscal '25, from a top-line perspective for our Beer business, we anticipate the momentum of our portfolio to continue. The shelf space gains we captured this past spring and our ongoing pursuit of additional points of distribution across the country are in line with what we outlined during our Investor Day. In addition, the opportunities across our disciplined innovation launches and the demographic tailwinds from Hispanic consumers who have high affinity and strong loyalty for our brands, as well as the incredible equity of our brands underpinned by our consistent marketing efforts give us further assurance that our top-line performance is sustainable. Moving on to operating income and operating margin performance for our Beer business. This segment delivered 16% growth in operating income and a 260 basis point increase in operating margin to 40.6%. These increases were largely driven by the strong top-line growth of our Beer business, as well as a nearly $50 million benefit from our savings and efficiency initiatives, which partially offset an increase in COGS of 7% excluding these savings, but inclusive of the impact of volume and foreign currency. As a reminder, approximately 25% of our total COGS are exposed to the Mexican peso and we are approximately 85% hedged against that exposure for the fiscal year. Marketing expense as a percent of net sales was 8.4% for the quarter, relatively in line with our full year expectation of approximately 8.5%. Other SG&A expense was 4.4% as a percent of net sales, slightly under our full year expectation as we expect an uplift in the second half due to lower fixed cost absorption, as well as talent acquisition and integrated supply chain investments. We continue to expect Beer operating margins of approximately 39% for fiscal '25. And from a cadence perspective, we anticipate incremental COGS relative to net sales in H2 due to lower fixed cost absorption from normal volume seasonality with some favorability in Q4 from lapping the VAT write-off in the same period last year. Shifting to our Wine and Spirits business. The segment realized a 7% net sales decline in the first quarter. This was largely driven by a 5.1% decrease in shipment volume as marketplace dynamics in U.S. wholesale remain challenging, particularly in the wine category. That said, we continue to expect that the operational and commercial execution initiatives identified in Q4 of last fiscal year and set underway in our recently completed Q1 should help us more effectively navigate the broader category and segment headwinds to ultimately deliver relatively stable year-over-year net sales performance in fiscal '25. Note, however, that we expect the top line performance uplift in our Wine and Spirits business to be more heavily weighted towards the second half of the year, aligned with the usual seasonality of the business and as the benefits of our commercial and operational execution initiatives begin to take hold. From an operating income perspective, our Wine and Spirits business realized a decline of approximately $20 million, which in-turn resulted in a 370 basis point decrease in operating margin to 15.3%. These declines were primarily driven by unfavorable cost of goods sold, lower volumes and unfavorable product mix due to category headwinds extending into higher priced segments, which more than offset the favorable impacts of SG&A expense and favorable pricing. The unfavorable COGS relative to the net sales was primarily driven by higher grape and low end spirits costs, partially offset by cost savings realized in freight and warehousing. Our marketing expense as a percent of net sales was 10.5%. This was elevated when compared to our medium-term target due to ongoing marketing investments around some of our largest brands, particularly through tactical initiatives. SG&A as a percent of net sales was 17.5%, which was also elevated when compared to our medium-term target as benefits of our SG&A savings initiatives are expected to be realized in future quarters. As we look towards the rest of the year for our Wine and Spirits business, while we expect improvement in our performance for both operating income and operating margin, we continue to anticipate a full year 9% to 11% decline in operating income for our initial fiscal '25 guidance. Rounding out the rest of the P&L. corporate expense for the quarter was approximately $59 million, reflecting a year-over-year increase of $9 million or 18%, largely driven by higher compensation and benefits, and professional fees. Interest expense for the quarter was $103 million, a 14% decrease from the prior year and our comparable effective tax rate was 18.2% compared to 20.7% for the corresponding quarter last year. Our corporate expense, interest expense and comparable effective tax rate expectations for fiscal '25 remain unchanged at $260 million, $445 million to $455 million and 18.5%, respectively. We expect a marginal increase over the coming quarters in corporate expense, mainly due to an increase in compensation and benefits and digital capabilities investments. We also expect a slight uplift in interest expense due to lower capitalized interest from our Beer business expansions beyond Q1, any minor increase in our effective tax rate due to anticipated incremental contributions from our Wine and Spirits business to our Enterprise operating income. Turning to free cash flow, which we define as net cash provided by operating activities less capital expenditures. For the first quarter of fiscal '25, we generated free cash flow of $315 million, a 19% decrease from the prior year as capital expenditures increased 35%, primarily driven by the construction of our greenfield brewery in Veracruz. That construction is progressing as planned And similar to all of our recent expansions, we believe will enhance our production capacity, product redundancy and overall efficiency for our Beer business. We expect our new brewery to be operational towards the end of next fiscal year or in the earlier part of fiscal '27. To conclude, the excellent Enterprise results were achieved in the first quarter of fiscal '25 support our confidence and our ability to deliver on our financial and strategic objectives for the full year, as we continue to leverage our strong portfolio of brands, relentlessly pursue operational excellence and remain consistent and adhering to our disciplined and balanced capital allocation priorities. That said, as we always do, we will continue to closely monitor the consumer, currencies and our input costs and to take appropriate action in response to any potential volatility or macro headwinds. As always, we thank you for your continued support and interest in our company and we look forward to sharing our progress with you throughout the year. With that, Bill and I will be happy to take your questions during our Q&A session. Thank you. Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Andrea Teixeira with JP Morgan. Please proceed with your question. Andrea Teixeira: Yeah. Hi, Good morning. So, Bill, Garth, you elaborated -- you commented on the continued momentum in beer and disciplined marketing efforts leading to sustainability of growth. I think, we are all hoping to hear from you a little bit of how you exit the quarter. Any June commentary so far given the state-of-the consumer, given all we are hearing from other companies and the economy in general? So if you can comment on that? And related to that, like I think we all hope that you are benefiting from all the shares and expansion in distribution? And if you can kind of tell us like a little bit of how you benefited from -- in the depletions that you just reported at 6.4%, how much you would say came from same shelf growth or how much was additional distribution? Thank you. Bill Newlands: Sure. Let me start with that. First of all, I think the important thing to always keep in mind is that our buy rates for our Beer business remain very strong. We saw high-single digit both at a consumer level and within the Hispanic community, with the Hispanic community being slightly higher than the total consumer. Now that doesn't mean there aren't some shift around in pack sizes and channels, but our buy rates remain extremely strong. And I think this is a consistent theme that we've said time -- frankly, time and time again, which is our Beer business has tremendous brand loyalty and therefore it continues to excel despite whatever might be going on with other beer companies or with other brands in the sector. As we noted, we had an unusually strong performance against all other CPG sectors and we're again the number one share gainer within beverage alcohol. To your point, I think the gains that we saw in shelf sets is certainly an additive factor in this. It also gives us plenty of chance to expand things like Oro, which we're very excited about for this fiscal year. So I think it's very difficult to put an exact number on the dimension of it. And I think you've seen, we've consistently delivered year after year after year on exactly what we said we would do and this quarter is no different. Operator: Thank you. Our next question comes from the line of Carlos Laboy with HSBC. Please proceed with your question. Carlos Laboy: Yes. Hello, everyone. You've been able to sustain pretty good profit margins or pretty stable profit margins here remarkably well despite the Mexican peso having appreciated very strongly in recent years, but that seems to have turned this quarter. If you were to enter a period of pace of weakness, can you speak to the sort of flexibility that this might give you or that would enter into your pricing strategy? And look, just to be transparent, the reason I'm asking is because in the 80s and 90s, we went through periods of peso weakness and you were able to successfully close price gaps with mainstream beer and the dividends of that are still coming through today. So if you could just speak to how you're thinking about this, it would be helpful. Bill Newlands: Yeah, Carlos. I think the results that you referenced are just an indication of how effective our hedging policies really are. We have a multi-year hedging policy which allows us to layer in incremental hedges over a multi-year period when we see moments of weakness, if you will. In Q1, we actually did see a couple of days there where there was some fairly significant movements, greater than 10%. And we took advantage of that movement with our treasury team again layering in incremental hedges, not just for this year, but also for future years as well. Just as a reminder, when we entered this fiscal year, we were about mid-70% range hedged against the peso. And as a result of these incremental hedges, we now sit at about 85% for the full-fiscal year. So again, it's a very robust practice, very methodical, disciplined and flexible approach and it certainly been paying dividends for us. Operator: Thank you. Our next question comes from the line of Dara Mohsenian with Morgan Stanley. Please proceed with your question. Dara Mohsenian: Hey, good morning. So just to follow-up on Andrea's question in terms of macros and potential impact on the Beer business, can you unpack a little more maybe what you're seeing from low versus middle versus high-end consumers in terms of demand for your Beer business? And then also just any update on on-premise channel trends and what you're seeing throughout the course of fiscal Q1 and so far this summer, just in terms of if we're seeing any big channel shifts or any types of impact on that front? Thanks. Bill Newlands: Sure, Dara. Let's start with the second question first. The on-premise was slightly weaker than what we might have expected. Although as you saw, we had some significant gains within our franchises, particularly Modelo, which stepped up a position versus what we had in prior years. I think some of that relates to couple of things. One is, as many people have noted, the weather scenario that existed over the course of the early part of the spring/beginning of summer, while it wasn't great, which impacts the on-premise, much like it impacts the overall business. So I think that was a bit of a play. But as we are getting into the summer months, we expected this to show some resiliency. I'd reemphasize to your question about where the consumer is at various price points -- excuse me, income points. I think yet again, this goes right back to what I said in answer to her question, which is the brand loyalty that exists with our consumers is second to none. I mean, when you look at the Hispanic consumer, which is one we watch very closely given it's more than 50% of our overall mix, that consumer buy rate was up compared to the total consumer. Again, I think that speaks very strongly to the loyalty that we see within that consumer base, irrespective of income. That in particular is a long range benefit for our business and will continue to be a long range benefit to our business given that community in many respects views beer as a stable. So again, overall, we continue to be very pleased with our buy rates. And despite gives and takes during the course of the quarter, I think it's reflected in our depletion rate of 6.4%. It's a very strong quarterly result. Operator: Thank you. Our next question comes from the line of Filippo Falorni with Citi. Please proceed with your question. Filippo Falorni: Hey. Good morning, everyone. First, just a quick follow up on Andrea's question, if you can just provide any update on just what you're seeing exiting the quarter into June. And then a bigger picture question on innovation. Last year, obviously, you had Modelo Oro, which was pretty successful and you have some runway for this year. Can you talk a bit about this year's innovation including Corona Sunbrew and the Modelo Aguas Frescas expansion and anything else we should think about in terms of innovation contribution in beer. Thank you. Bill Newlands: You bet. And as we've said in other quarters, we're not going to give quarterly depletion guidance. But what I will say is we're very pleased with the status of the weather going into this particular quarter. And as we've always said, that's really a big factor in terms of the delivery of the business. And quite frankly, the forecast for tomorrow is terrific. So we're looking-forward to the July 4, being yet another event in a weekend and weekday in this case that we will win, much like we did on Memorial Day before it. So relative to the innovation agenda, we have expanded Modelo Aguas Frescas to 20 additional markets. As you may recall, it was test marketed last year in Las Vegas and was the number-one FMB in that particular market, had a very strong start and that variety pack is now in 20 additional markets, which covers roughly 70%, 75% of the total consumption expected for that product. So we're very excited to watch that one develop as the year goes on. Similarly, we are testing Corona Sunbrew in the Northeast just -- again just getting started and it's very early days, but we're very pleased with their response to it. And certainly, much of the consumer sampling that's been done around that product suggests that, that product is going to be a home-run for us with the consumer. So, again, both of those are too early days to really have any, what I would call, concrete results. But as we always do, those were only introduced after significant testing at a consumer level to make sure that we had the right product, the right package and the right pricing mix to give them a very high probability of success. Operator: Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question. Lauren Lieberman: Great. Thanks. Good morning. So the strong start to the year on profitability would seemingly create more flexibility to hit that 10% to 12% operating profit guide for Beer for the year. Particularly there's nothing too material from a timing perspective in the quarter. So kind of what do you see as the key variables that influence the high versus the low-end of that operating profit guidance range from here? Thanks. Bill Newlands: Well, look, Lauren, we feel really good about the guidance we gave for the full-year. And obviously, we feel really good about the results that we reported today. As we gave guidance in April of this year, obviously we laid out that from a Beer perspective, we very much expected that our operating income growth would be in that 10% to 12% range and we certainly reiterated that today. That implying that our operating margins would be at about 38%. I think it's important to note that -- or 39%, I should say. I think it's important to note that we gave that guidance as it relates to the margin on an annual basis, not on a quarterly basis. So that means that we won't necessarily hit 39% or approximately 39% every quarter. Certainly, we expect that there's going to be the normal seasonality that we see every year, which means we have higher volumes in the first-half of the year and then lower volumes in the second-half of the year just due to regular seasonality, which resulted in a bit of a fixed overhead absorption drag as well as the second-half of the year is when we do most of our maintenance on our breweries. So therefore, the second half of the year will be lower from a margin perspective than the first half of the year. That being said as we've noted previously, we do expect that in Q4 that we will see some favorability on a year-over-year basis due to the lapping of the VAT write-off of last year. Operator: Thank you. Our next question comes from the line of Nik Modi with RBC Capital Markets. Please proceed with your question. Nik Modi: Yeah. Thank you. Good morning, everyone. Bill, just more of a philosophical question. I mean, the sentiment on the beer category has been pretty poor for a while now. Obviously, investors see it, but the trade talks about it as well. And obviously, your business has been very disconnected from that. So I'm just curious like as you engage with your supply chain partners, distributors, retailers, what's the conversation look like? I mean, are they coming around the fact that maybe they can't index your business relative to the beer category anymore because there's a lot of moving pieces and cross consumption? It's really about occasions versus just some holistic category. I mean, I'm just curious like what that discussion looks like right now especially as you're in the middle of shelf resets and probably discussions for what's going on in the fall and even next year? Bill Newlands: And I'll have to start, Nik, by giving a little tip of the cap to you because you pointed out what we think is a critical point, which is this is all about brands. The reason our brands have gotten double-digit increase in their shelf position during this period of time is because of the strength of those brands and the takeaway. As we've said on prior calls, our average SKU takeaway in dollars is five times the rate of our cheap competitors. So if you're a distributor or you're a retailer, you're going to put the emphasis on where you get growth and profitability and growth in takeout and strong velocities. And our brands represent that. That's why you see Pacifico with 20% growth and being the number four share gainer. That's why you see Modelo Especial now being the number one play in off-premise dollar volume. Our brands are very strong and they stand out distinctively from other brands in the category and I think you've made that note many times and we happen to agree fully with that. Lastly, I'd say, we continue to invest in our brands. Part of what we are doing is we believe there's still significant upside on the longer-term in terms of our brands and the investment that we put behind them. Despite Modelo being number one, there's still a lot of awareness opportunity and we're planning to go get it. We feel the same way about things like Oro and Aguas Frescas and Sunbrew. We're bringing new scenarios and new occasions to more consumers. I think that all speaks to the strength of our brands. And I think whether you speak to retail or whether you speak to distributors, they're all very excited about our prospects, not only today, but for the long-term. Operator: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane: Hey. Thanks, operator. Good morning, guys. Bill Newlands: Good morning. Bryan Spillane: I have just two questions. I guess the first one is just Garth or Bill. If you can just comment on Veracruz, I know you made a comment in the prepared remarks, but just how far along you are in the construction or do we have a foundation yet? Have we piped in water? Just some sense of kind of where you are and where that is relative to plan? And then I have a follow up. Bill Newlands: Well, Brian, I mean, as I said in my remarks, I mean we are well on our plan. We expect to open that brewery at the end of the next fiscal year, early in the fiscal year-after that. So we're well on our way. It is why our CapEx this year is at its peak. As a reminder, we shared with everybody at Investor Day that FY '25 would be our peak in terms of CapEx as that construction is kind of at full throttle. Importantly, our -- as this is our peak year of CapEx, we do expect that by the sort of end of our medium-term outlook, meaning FY '25, we'll go from CapEx kind of in the low double-digit range of net sales to mid-single-digit range of net sales. So just important for all of you to know and appreciate that. But as it relates specifically to Veracruz, we are on-track. Bryan Spillane: Okay, thanks. And then just a follow up on some of the earlier conversations. Bill, the stock is down today because I think there's a concern about the tough comparisons in beer, maybe a little bit of election concern because of how the stock reacted when Trump was elected in 2016. So could you just give us a first -- or a perspective on how you think about the comps? I mean, the comps were the comps when you set your plan. So it's not like they're a surprise. So if you can give us a perspective on that and whether or not people should actually even be worried about the election and who wins or loses relative to FTC? It's a different… Bill Newlands: Yeah. Sure. I think it's always risky and we've talked to many, many times, Garth and I have about this topic about getting too excited about what happened tomorrow morning rather than looking at the longer-range picture. Year after year after year now, we've delivered against the goals that we set out and we're not varying from our expectation from this year in part because of very strong performance that we delivered in Q1. As Garth noted in his remarks, that doesn't mean there aren't times when it's a little better or a little worse or you have a little variability because you have less sell days or you have various things that go on. I think it's important to look at the bigger picture. Our brands continue to perform year after year and the runway for those brands remains extraordinarily strong. I think that's going to be a true statement no matter who's elected in November. Our brands are really focused on delivering against the consumer and that consumer is incredibly loyal, as I said just a few minutes ago. That makes a big difference irrespective of who happens to be the President of the U.S. So we're certainly -- I might add and we've said this before as well, our government affairs team works very closely, both in the United States and in Mexico on both a federal and a local level. And I think that capability is one that's also advantageous to us again irrespective of any particular party that might happen to be in office at any particular time. Operator: Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question. Peter Grom: Thanks, operator. Good morning, everyone. Hope you're doing well. So Garth, I was hoping to get some updated perspective on just kind of the puts and takes as it relates to the beer profit outlook. Back in April, you touched on volume leverage, price/mix, cost savings being tailwinds versus commodities and FX being headwinds. I mean I'd just be curious, have your expectations for those buckets changed at all over the last few months? I totally understand you've reiterated the outlook this morning, but just have the building blocks changed at all versus your prior expectations? Thanks. Garth Hankinson: Well, thanks, Peter. I mean, I guess the shorter answer to that question is no. I mean, as I just laid out previously, we are -- we will see quarterly variability as we do every year, mostly driven due to seasonality, volume seasonality, certainly the building blocks that we laid out in detail at our April conference call, we were provided for full-year guidance, those remain where they are or what they are. As we noted a couple of times now, we are taking actions where we see that there's opportunity to take actions like making sure that we further hedge against the peso when we see weakness. But other than that, I mean, the business continues to be the business and the building block for the building blocks. Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question. Chris Carey: Hey. Thank you very much. I'm going to follow up on Peter's question there around gross margins in beer specifically. Garth, can you maybe frame how the Q1 gross margin came in relative to your expectations on paper? It certainly looks like strong delivery specifically in the context of the rest of the year. And then just regarding the commentary around taking advantage of the weaker peso, does that give you more confidence on this fiscal year? And how much can you actually take advantage of for fiscal '26 at this point? Thanks. Garth Hankinson: Yeah. So I would say that the gross margins kind of came in within our expectations just to give you a little bit of color around what drove that. We essentially saw about 100 basis-points of improvement in gross profit margin on a year-over-year basis. About 30% of that or 30 basis-points of that, I should say, is volume, price and mix driven. About 80 basis points are what I would just call cost of goods, logistics materials, labor, offset by depreciation and things of that nature. We got about a 20 basis points bump due to the craft divestiture and then we had about 30 basis points hit just due to the exposure against the FX that's unhedged. So that's really what the building blocks or not, the makeup of the changes. We feel really good about where we are for the balance of the year. Certainly, we continue to progress against our aggressive cost savings initiatives that we outlined at our Investor Day. As I mentioned in my comments, we've already got $50 million or about $50 million in Q1 that we think is sustainable and we'll certainly continue to execute against the cost savings initiatives as we go through the balance of the year. Operator: Thank you. Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question. Bonnie Herzog: All right. Thank you. Good morning. I had a question on just marketing. Your outlook for marketing and advertising spend this year, it's below historical levels. And I guess there's some concern that you may be starving your brands. So could you touch on this and provide a little more color on the efficiencies you've gained and may continue to gain, how you're approaching investments this year? And I guess why you feel good about these investment levels? Thanks. Bill Newlands: Yeah. You bet, Bonnie. We're actually going to be spending more dollars this year than we have in prior years as you would expect because our brands demand it and our growth profile allows us to continue to do it. With that said, you did point out an important point is we have created some efficiencies within our spend and therefore the percentage is slightly less than we've done in prior years, purely driven by efficiency. That doesn't change the fact that we are spending more against our brands than we've ever spent and that process will continue. We strongly believe engaging our consumer with critical national media and digital advertising platforms are critically important to continue to create awareness and to bring consumers into our franchises. In fact, you're seeing spend against many of our new initiatives. You're seeing that against Sunbrew, you're seeing that against Aguas Frescas. We just kicked off our Oro spend for the year. We are very strongly supportive as we have been for many, many years against our brands and that process will continue. Garth Hankinson: Yeah. And if you don't mind me, Bill, I'll explain a little bit more. I mean, we've said this publicly multiple times now. We will continue to invest in the growth of our business, both in marketing just like we did, just like we do with the investments we're making in our brewery capacity. We will not starve our brands for marketing in order to hit a margin profile. Instead, we will continue to invest for growth. Bill Newlands: So since we're piling on, Garth, do you mind if I pile on too? Garth Hankinson: Yeah. Bill Newlands: One of the reasons why we saw the improvement in the Modelo penetration and the double-digit growth in Modelo's business in the quarter is exactly what we're just talking about, which is we spend against our business. That's why Modelo in 10 years has gone from a tiny little brand to the number-one brand by dollars in the United States. Operator: Thank you. Our next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your questions. Nadine Sarwat: Hi. Thank you. I want to come back to the November election. So former President Trump has mentioned the potential of a 10% universal baseline tariff should he win. Given your Mexican import beer business, how do you think that potential scenario would play out for Constellation? And how would you add color on the risk that it would place? Thank you. Bill Newlands: I think it's too early to speculate on what may or may not happen in November. Quite frankly, our business performed just great during the last Trump administration and I would expect that we would perform extraordinarily well in a new administration, irrespective of who might be at the helm of that administration. I think it's important to recognize. Our business includes inputs from -- heavy inputs from the upper Midwest in the United States as an integral part of what our overall package of inputs are in our business. Admittedly, there's a lot of flow, our biggest trading partner in this country is Mexico and I think that's likely to continue. And we're sure we'll be able to navigate anything that might occur just fine and we'll work aggressively to do just that. Operator: Thank you. Our next question comes from the line of Rob Ottenstein with Evercore ISI. Please proceed with your question. Rob Ottenstein: Great. Two questions. One, terrific quarter, reiterated the guidance, a lot of confidence, stock down. Love to get your -- kind of renew your kind of your thoughts on share buybacks here with the stock, really not much higher than it was in 2018 which has got to be a huge disappointment to you, your management team and the Board and myself frankly since we've been recommending it. So that's question number one. And then question number two, I'd love to get your thoughts on just the beer industry overall, how it's been developing. And there was an earlier question, I think, on how you did in June. I'm not sure you answered that. If you're not comfortable talking about your performance in June, maybe the industry overall in June, whether it looked better sequentially than in May? Thank you. Garth Hankinson: Thanks, Rob. Hey, just in terms of the share buybacks, I mean, I think as Bill alluded to in his opening remarks, in Q1, we continued to make and show the same progress that we have over the last five years in terms of all of our capital allocation priorities that included our share buybacks. As Bill noted, we bought back $200 million worth of shares in the first-quarter. And then through the end of June, I bought back an additional $40 million plus. So we've continued to do what we said we would do. As we've come -- as we've come out of the Q1, we still have about $2.4 billion, $2.6 billion left on our share reauthorization and we will continue to use the same discipline that we have exercised over the last several years and by when we see periods of dislocation. Bill Newlands: And relative to your question about the overall beer category, certainly, it appears that there's been some positive momentum as we've come out of June. I think a lot of that relates to the development of the summer. We're heading into the peak summer selling season, which we're always excited to see given we tend to win all of the major holidays during those seasons and would expect to do so tomorrow as well. But certainly, it looks like there's been some improvement. I think a lot of that, we've covered this and you hate to note this too often, but the reality is there were a lot of sort of bad weather moments at key times around weekends and holidays over the first part of this calendar year, which certainly hasn't been beneficial for the category overall. But I got to go right back to what I said a couple of times already today, which is our brands have outperformed this category for a long, long-time and we expect that to continue because of the strong brand loyalty that we have amongst our consumers. Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question. Robert Moskow: Hi. Thanks for the question. I guess I'll ask about wine. The guidance for the year implies a pretty substantial pickup in sales growth, I guess, in the second-half. What kind of visibility do you have with your distributors on how the commercial turnaround is going? Are they making bigger commitments about what they're willing to take on? And because it does it does imply a pretty steep ramp. Thanks. We already always said, especially after our prior quarter, that we were going to take nine to 12 months-to get our wine business back into the position that we expected to do. Bill Newlands: We're pleased with what the work that's been done. I think we're ahead of schedule on some of the operational points that we expect recognizing they're likely to be second-half loaded because once you put into work, you have to wait to get the results out of them. Second, I think we've seen some significant improvement in our engagement, particularly with our wholesale network. And we believe that's going to create good opportunity in the back-half of this year. Some of the re-expression of our marketing dollars that we have put in-place, you saw some of that play-out in that -- in terms of the early spend in this quarter are already showing some positive signs and we'll look-forward to reporting on those as we go-forward. But certainly, we expect the improvement in this business to be back-half loaded as we've said now a couple of times. I think the other thing to also recognize, both our international business and our DTC business are performing ahead of what we had planned. The place where we're still spending a lot of time and energy is on the wholesale portion, but we're working very closely with our key wholesale partners to deliver against those expectations. And I think fortunately, we are all on the same page about what needs to be done and what delivery we expect against that business as we progress through the year. Operator: Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Bill Newlands for closing remarks. Bill Newlands: Thank you, Darryl, and thank you all again for joining today's call. We're certainly off to a solid start in fiscal '25 and clearly today brings a great buying opportunity for our stock. Our beer business continues to deliver excellent top-line performance underpinned by leading volume growth while achieving solid margin expansion through our cost-savings and operational efficiency initiatives. While our Wine and Spirits business continues to face challenging market dynamics, it is making progress on commercial and operational execution initiatives expected to drive improved performance. Altogether, at an enterprise level, we continue to significantly outperform the entire CPG sector with our strong volume-driven growth and we remain confident in our momentum and our outlook for the full-year, including delivery of our double-digit comparable EPS growth. And with that, I wish you all a happy 4th of July holiday and certainly hope that you contribute to our outstanding performance that we expect to have during this critical holiday period. Thank you all for joining the call and have a good summer. Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.

Operator: Good day and welcome to the Constellation Brands' Fiscal Year 2024 Fourth Quarter Full Year Earnings Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Snehal Shah, Director of Investor Relations. Mr. Shah, you may now begin. Snehal Shah: Thank you, Rob. Good morning, all, and welcome to Constellation Brands' Year End Fiscal 2024 Earnings Conference Call. I'm here this morning with Bill Newlands, our CEO, and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on this call are included in today's news release or otherwise available on the Company's website at www.cbrands.com. Please note, when we discuss comparable earnings per share figures for fiscal 2024 and prior fiscal years, we are referring to earnings per share on a comparable basis excluding Canopy equity and earnings, unless otherwise noted. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements made on this call. Following the call, we will also be making available in the Investors section of our Company's website a series of slides with key highlights of the prepared remarks shared by Bill and Garth in today's call. Before turning the call over to Bill, in line with prior quarters, I would like to ask that we limit everyone to one question per person, which will help us to end our call on time today. Thanks in advance, and now here's Bill. Bill Newlands: Thanks, Snehal, and good morning, everyone. Welcome to our fiscal '24 year-end earnings call. As usual, I'd like to start with a few headlines from this past fiscal year. First, I'm pleased to report that we delivered another year of strong performance in fiscal '24. We drove comparable earnings per share growth of nearly 9% and remain focused on achieving our stated medium-term target of low-double-digit comparable EPS growth moving forward. This growth was supported by a net sales increase of 5% at an enterprise level and solid operating leverage that resulted in an increase of 7% in comparable operating income, representing an enterprise comparable operating margin of nearly 33%. This performance once again yielded recognition for Constellation Brands as the number one growth leader among large CPG companies by Circana in calendar year '23, as we have been five of the last seven years. We are the only CPG company of scale to make their top 10 ranking for 11 consecutive years. Our continued strong performance and momentum heading into fiscal '25 reinforces our confidence and our ability to deliver against the following targets outlined at our Investor Day this past November, maintaining 6% to 8% enterprise net sales growth, delivering 33% to 35% enterprise comparable operating income margin and generating low-double-digit comparable earnings per share growth, all of which we intend to achieve in fiscal '25. Second, from a segment perspective, our fiscal '24 results were largely driven by our Beer Business, which delivered net sales and operating income growth above 9% and 8%, respectively, both exceeding our expectations from the beginning of the year. This strong performance drove our largest dollar share gain ever for a full fiscal year, adding an impressive two points of dollar share within the US beer category. And we achieved a significant milestone this year, as Modelo Especial became the number one beer in US dollar sales. Furthermore, across all beverage alcohol, our Beer Business was the number one dollar share gainer, capturing 1.1 points of share and driving nearly 70% of the total dollar growth in the sector. This was truly a remarkable achievement by our entire beer team working in concert with our distributor and retail partners as they delivered volume growth for the 14th consecutive year, which is certainly another incredible differentiator amongst CPG companies. In our Wine & Spirits business, we faced a series of near-term category headwinds throughout fiscal '24, but remain confident that our strategy is sound. We recently promoted Sam Glaetzer to serve as our new President of Wine & Spirits. He is a well-rounded and accomplished industry veteran with nearly 30 years of experience in the wine and spirits category and a successful track record of driving commercial and operational efficiency and effectiveness. Sam also played an integral role in the implementation of the business transformation over the last few years, leading our global end-to-end supply chain optimization initiatives and building a world-class farming, winemaking, and distilling network aligned to consumer preferences while developing a focused international route to market to deliver incremental growth for the business in the medium-term. Now that the strategic transformation of our Wine & Spirits portfolio is largely complete, Sam is well-positioned to lead our team in driving enhanced focus on execution and the delivery of growth and improved profitability. To that end, our Wine & Spirits team has identified several immediate actions to help drive improvement in our year-over-year top line performance, which I'll discuss in more detail shortly. Third, we continued to achieve superior cash flow generation and deployed that cash in a disciplined and balanced manner underpinned by our consistent capital allocation priorities. For fiscal '24, we generated $2.8 billion in operating cash flow and we're able to reduce our net leverage ratio by nearly half a point while returning over $900 million back to our shareholders through quarterly dividends and share repurchases. We also continued to prudently invest to support the ongoing growth with total capital expenditures of nearly $1.3 billion in fiscal '24, most of which was focused on capacity additions to our beer brewing operations. And fourth, we continued to deliver against our environmental, social, and governance objectives, which I'll discuss in more detail shortly. With that as a backdrop, let's turn to a more detailed discussion of our fiscal '24 performance, starting with our Beer Business, which despite some challenging weather in our fourth quarter, grew depletions by 9%, resulting in our 56th consecutive quarter of depletion's growth. For the full year, we continue to extend our lead as the number one high-end beer supplier in the US, delivering top share gains across the total beer category, underpinned by a nearly 14% increase in dollar sales and nearly 11% volume growth across tracked channels. And in line with our expectations, we captured low-double-digit percent incremental shelf space this spring while adding another 21,000 resets through our Shopper-First Shelf program in fiscal '24. These factors all played a significant role in driving the growth of our Beer Business paired with the strength of our portfolio's iconic brands, starting with Modelo Especial, which grew depletions by nearly 10% and maintained its leading position as the top share gainer, and as noted earlier, the number one overall beer brand in US tracked channels. Corona Extra increased depletions nearly 1% and maintained its position as the number three high-end beer brand in the US. And Pacifico delivered depletion growth over 17% as it reached the 20 million case sold milestone and remained a top 10 dollar share gainer across the total beer category and the number four dollar share gainer in the high-end. While we continue to build on the success of our iconic brands, we are also building good traction with our focused innovations aligned with consumer-led trends of premiumization, flavor and betterment. Our Modelo Chelada brands delivered an increase of 30% in depletions, also surpassing 20 million cases sold, and remain the number one Chelada in the category, supported by the launch of our new flavor, Sandia Picante, and new pack-size offerings. We are excited to continue to build on that momentum in fiscal '25 with two new flavors, Fresa Picante and Negra con Chile. Modelo Oro's national launch established a strong foundation for the brand as it rose to become a top five share gainer across the total beer category and the number three share gainer in the high-end with just two SKUs. Given that strong reception and ongoing consumer demand for betterment products, we are launching two more Modelo Oro SKUs in fiscal '25, an 18-pack and a 24-pack. Staying within the Modelo brand family, our new Aguas Frescas variety pack secured the number one new FMB spot in its test market of Nevada. So on fiscal '25, we will be expanding its rollout to another 20 markets for this authentic liquid aligned with consumer-led flavor trends and featuring our nitro technology. In our Corona brand family, we introduced Corona Non-Alcoholic, which is the leading dollar share gainer in the fast-growing non-alcoholic beer segment. As for fiscal '25, we are testing Corona Sunbrew in select Eastern markets. This new, refreshing beer is brewed with real citrus peels and a splash of real citrus juice. The strong execution of our Beer Business in fiscal '24 was also reflected in our ability to maintain best-in-class margins by combating trailing inflation headwinds with cost savings and efficiency initiatives. We also continue to invest in our Beer Business in fiscal '24, deploying approximately $950 million in capital expenditures, supporting our ability to meet the continued robust demand we see for our brands through the expansion of our beer brewing capacity at Nava and Obregon, and the ongoing work at our new Veracruz site. Looking ahead to fiscal '25 and in line with the plan we laid out in our Investor Day in November, we expect our Beer Business to remain within our net sales growth algorithm of 7% to 9% and for operating margins to gradually improve, supported by our operating income growth of 10% to 12%. Moving on to Wine & Spirits. Due largely to the challenging market dynamics referenced earlier, our Wine & Spirits business saw declines of approximately 8% for both organic net sales and operating income, but still landed within our revised guidance range. While we do not expect ongoing challenges in the Wine & Spirits category to immediately subside, particularly in the mainstream and premium price segments. We have identified several areas to improve the performance of our Wine & Spirits business in fiscal '25, including, but not limited to, refocusing our efforts within our premium and above brands to more consistently drive growth in our most scaled and central offerings, notably Kim Crawford, Meiomi, The Prisoner, High West, and Mi CAMPO, while accelerating additional tactical investments to revitalize the equity and support demand for our largest mainstream brand, Woodridge, and ensuring that we continue to support the transformation of other significant brands in our portfolio such as SVEDKA then by Robert Mondavi, Ruffino, and Lumina. Note that these 11 brands represent three-quarters of net sales and over 80% of volumes for our Wine & Spirits business in fiscal '24, which is why we plan to provide more focus and investment for them. Another key area we are focused on is aligning with our US wholesale distributor partners on clear priorities to help enhance our performance in our largest markets and channels. As noted in our prior call, these priorities include enhanced focus on improving mix, inventory, and sales execution. We will also be making additional investments in media spend and price promotions, as well as adjustments in our own sales capabilities to better support the execution and go-to-market efforts of our distributor partners. And similar to our Beer Business, we will continue to focus more broadly on efficiency opportunities to drive operational and sales excellence across our Wine & Spirits segment. This will include the operational and supply chain initiatives highlighted at our Investor Day, as well as enhancements to the business' organizational structure to enable a more effective and competitive operating model. Looking forward to fiscal '25, we expect our Wine & Spirits business net sales to be relatively stable and operating income to be down 9% to 11%. While we believe the focus on sales execution I just outlined will help stabilize the top line growth for Wine & Spirits, our operating income guidance reflects incremental investments in additional media spend, price promotions, and sales capabilities, as well as continued inflationary pressures on some cost of goods sold and lapping of distributor contractual payments and reduced incentive compensation that occurred in fiscal '24. As we noted, we remain committed to continuing to advance this business over the coming years toward the medium-term targets shared at our Investor Day. Moving on to capital allocation, we continue to deliver against our stated priorities and targets in fiscal '24. As noted earlier, we further strengthened our balance sheet with a reduction in our net leverage ratio supported by our strong earnings performance and our disciplined debt management. We returned cash to shareholders and deployed most of our capital investments to brewery expansions to support the growth of our Beer Business. And we continued to conduct tuck-in gap-filling acquisitions that are aligned with consumer-led trends and complemented our portfolio. We also made notable progress in regards to our environmental, social, and governance ambitions in fiscal '24. From a governance perspective, our Board undertook refreshment actions that resulted in the appointment of two new independent directors, each with strong financial backgrounds. We also recently announced the election of a new independent Board Chair, Chris Baldwin, who brings a wealth of senior leadership experience from the CPG sector. In addition, in line with our commitment to be good stewards of the environment, since we had surpassed our initial water restoration target in fiscal '23, we established a new goal of restoring more than 5 billion gallons of water to key watersheds near our operations between the timeframe covering fiscal '23 and '25. This goal is designed to ensure local residents and businesses have ample supply and access to water, which is the key to building sustainable and thriving communities. Finally, we announced two new environmental commitments in fiscal '24 to reduce waste within our key operating facilities and to enhance circular packaging. So in summary, we, once again, achieved another strong year of performance and significant progress across our strategic initiatives in fiscal '24, and we fully expect to build on this momentum in fiscal '25. We are confident in our ability to continue to create shareholder value and deliver on our commitments, including achieving low-double-digit comparable EPS growth by generating high-single-digit net sales growth and delivering best-in-class margins for our Beer Business, managing category challenges and improving the growth trajectory of our Wine & Spirits business with enhanced execution, and maintaining our capital allocation discipline and commitment to operate in a way that is good for business and good for the world. As I wrap up, I want to once again thank all of our colleagues across Constellation, as well as our trade partners, for their hard work and dedication in helping us deliver another year of industry-leading performance. And I believe we are well-positioned to keep that momentum going in fiscal '25. And with that, I will turn the call over to Garth, who will give more details on our financial results and outlook. Garth Hankinson: Thank you, Bill, and good morning, everyone. As usual, my discussion will focus mainly on our comparable P&L results, starting at an enterprise level followed by business segment detail for fiscal '24. I will then discuss our fiscal '25 outlook and expectations in the same manner. Starting with net sales. As an enterprise, we delivered growth of over 5%, slightly exceeding our fiscal '24 guidance range of 4% to 5%. This was driven by the strong performance of our Beer Business, which grew net sales over 9%, exceeding our guidance of 8% to 9%. As Bill mentioned, our Beer Business had another strong year of depletion growth, a 7.5% increase as the strength of our portfolio carried throughout the entire year. Off-premise depletions grew by over 8%, which represent nearly 89% of our total depletion volume. The on-premise accounts for the balance of our depletions and grew by over 1%. We expect to build on our momentum in off-premise channels supported by the low-double-digit incremental shelf space that we captured this spring, which we foreshadow at our Investor Day last November. And we continue to see opportunity to drive growth in the on-premise with new draft handles, particularly for Modelo Especial and Pacifico in the coming fiscal year. I will elaborate on fiscal '25 shortly. Shipment volumes for our Beer Business in fiscal '24 grew 7.4% and we achieved favorable pricing of 2%. These volume and pricing increases were partially offset by the divestiture of our craft beer business and an unfavorable shift in product mix. In aggregate, the volume, price and mix changes amounted to a nearly $700 million increase in beer net sales for fiscal '24. In regards to selling days, we had one extra sell day in the year, which occurred in Q4. This had a minimal impact on our volumes as shipments and depletions, on an absolute basis, were over 99% aligned for the year. For our Wine & Spirits business, net sales declined 9% and 8% on a reported and organic basis, respectively. The change in organic net sales for our Wine & Spirits business was within our lowered guidance range of a 7% to 9% decline. This decline was largely driven by unfavorable US wholesale performance, particularly across our mainstream and premium brands. As Bill noted, we are working with our US wholesale distributor partners to enhance performance in our largest markets and channels in fiscal '25. Additionally, in our international markets, net sales for fiscal '24 were down 7% by destocking, particularly in Canada, our largest export market. More recently, in Q4, net sales from our international markets grew 14%, largely driven by the Canadian market, where inventory levels have begun to normalize. The net sales declines in our US wholesale and international markets were partially offset by 10% net sales growth in our direct-to-consumer channel. Moving on to our operating income and margin. At an enterprise-wide level, we delivered a 7% increase in comparable operating income at the upper end of our 6% to 7% guidance, resulting in a 50-basis-point increase in comparable operating margin to 32.6%. This was driven by the strong performance of our Beer Business, which grew operating income by just over 8% and delivered an operating margin of 37.9%. Enterprise-wide operating margins also benefited from an 11% reduction or $30 million decrease in corporate expense driven mainly by reduced third-party consulting fees related to our DBA project spend. This solid performance was partially offset by our Wine & Spirits results as operating income excluding the gross profit, less marketing of the brands that are no longer part of the business following their divestiture declined by 8%. This decline was within our lowered guidance range of a 6% to 8% decline, resulting in a flat year-over-year operating margin of 22.2%. Elaborating on the margin puts and takes in more detail, starting with the Beer Business. The increase in operating income and slight 40 basis point decrease in operating margin were reflective of an absolute increase of approximately 12% in overall cost. This increase in COGS includes the impact of increased volume and the nearly $205 million from cost savings initiatives realized in fiscal '24. By COGS component and on an absolute basis, inclusive of both volume growth and cost savings, year-over-year changes were as follows. Raw materials and packaging represented the midpoint of 55% to 60% of total COGS and had an absolute increase of 16%. Logistics making up just over 20% of total COGS increased 3% as a large portion of the benefits from our cost savings agenda came from this area. Labor and overhead landed at just under 15% of total COGS and increased 19% attributable to the construction activities at our Veracruz Brewery. And the remaining portion of total COGS depreciation increased approximately $37 million, representing the incremental capacity that was brought online in fiscal '24. Moving on to marketing. Our dollar spend increased by approximately 2% year-over-year. As a percent of fiscal '24 net sales, marketing was approximately 8.5%, coming in slightly below our medium-term 9% algorithm, partly driven by the divestiture of our craft beer brands and efficiencies from the transition to our new media agency. Lastly, SG&A, which represented approximately 5% of net sales, increased approximately 8%, driven by the unfavorable impact of foreign currency and increased compensation and benefits. These increases were partially offset by benefits from the craft beer divestiture and lower legal fees. Moving on. Our Wine & Spirits business operating income margin, excluding the gross profit, less marketing of the brands that are no longer part of the business following last year's divestiture, remained flat year-over-year as the volume decline and unfavorable channel mix were offset by favorability in our COGS driven by nearly $40 million coming from our cost savings initiatives, favorable pricing, reduced other SG&A expenses, and a reduction in marketing expense. Interest expense for fiscal '24 was about $435 million, a 9% increase from prior year driven by higher average borrowings and weighted average interest rates. We ended fiscal '24 with a comparable net leverage ratio, excluding Canopy equity and earnings, of 3.2 times, leaving us well-positioned to achieve our target of approximately three times in fiscal '25. Our comparable effective tax rate, excluding Canopy equity and earnings was 18.5% versus 19.2% last year. Comparable EPS for fiscal '24, excluding Canopy equity and earnings, grew nearly 9% year-over-year to $12.38 and came in above our guidance range of $12 to $12.20. Moving to fiscal '24 free cash flow, which we define as net cash provided by operating activities less CapEx. We generated free cash flow slightly over $1.5 billion, exceeding our $1.4 billion to $1.5 billion guidance range. Free cash flow decreased 12% year-over-year, driven by a 23% increase in CapEx investments attributable to our expansions at our existing facilities and the ongoing construction of our new brewery in Veracruz. In fiscal '24, we increased our total nominal capacity from our Mexico brewery operations from 42 million hectoliters to approximately 48 million hectoliters as a result of the modular expansions brought online over the summer that were fully ramped by year end, along with unlocked incremental capacity through our optimization initiatives. Consistent with our capital allocation priorities, we, once again, delivered cash returns to our shareholders with over $900 million of expenditures in dividends and share repurchases. In addition, we executed portfolio gap-filling transactions encompassing both a tuck-in acquisition of a female- and Black-founded luxury wine brand with a successful track record and a venture investment in the high-growth non-alcoholic space in fiscal '24. With that, let me now step through our outlook for fiscal '25, starting with net sales. We are targeting our enterprise-wide net sales to grow up 6% to 7%, inclusive of a 7% to 9% growth target for our Beer Business, and a 0.5% decline to 0.5% growth in net sales for our Wine & Spirits business. The beer top line outlook is expected to be primarily achieved by continued strong volume growth of our portfolio. Again, we expect this to come from distribution of our largest brands bolstered by spring shelf reset gains, the health and continued support of our consumers, and innovation in the form of brand extensions, new to world products, and new pack sizes. Regarding beer volumes, we anticipate fiscal '25 shipments and depletions to track closely on an absolute basis, consistent with prior years. Similarly, we expect the cadence of our shipments and depletions, in terms of share of annual volumes from a quarter and a half year perspective to be fairly in line with fiscal '24. For Wine & Spirits net sales, we expect to largely offset ongoing category headwinds as we drive the sales and marketing execution initiatives described by Bill earlier. Additionally, we expect mix-related benefits due to the better performance in our higher-end brands. That said, we continue to anticipate overall volume growth to remain challenged, particularly due to demand headwinds in the mainstream and premium price segments, which account for a major part of our volumes. Furthermore, from a net sales perspective, we're expecting unfavorable lapping of bulk sales in fiscal '24. From a cadence perspective, we also expect quarterly and half yearly shipments and depletion shares of the full year total to be fairly aligned with fiscal '24. For fiscal '25 operating income, we expect comparable enterprise-wide growth between 8% and 10%, reflecting 10% to 12% operating income growth for our Beer Business, a 9% to 11% operating income decline for our Wine & Spirits business, and a slight increase in corporate expense to approximately $260 million. For our Beer Business, we anticipate operating income tailwinds from volume growth and favorable pricing. We expect these tailwinds will be partially offset by continued input cost inflation with an absolute increase in COGS, inclusive of volume growth, cost savings initiatives, and our multi-year hedging actions in the high-single-digits. We expect the following percent of total COGS and absolute increases across each component, for packaging and raw materials to account for 55% to 60% and increase mid to high-single-digits. Logistics to make up approximately 20% and increase mid-single-digits. Labor and overhead to be approximately 15% and increase in the high teens, primarily driven by merit salary increases, given the strong operational performance from the business and incremental headcount, primarily at our Veracruz Brewery, as we continue with construction. And the remainder of COGS depreciation with a mid-single-digit increase, which approximately equates to a $20 million step-up, which is slightly lower than recent years, given prior depreciation of the packaging line of the ABA facility that was operational throughout all of fiscal '24. Outside of COGS, we expect marketing expense as a percent of net sales to be approximately 8.5%, which is lower than our unchanged medium-term algorithm of 9%. The change of marketing expense as a percent of net sales for fiscal '25 is driven by a shift in our marketing investment allocation with an overall focus on maximizing value. The investment shift is geared towards prioritizing our largest brands to support their continued momentum, followed by our high growth potential Next Wave brands and then thoughtful and deliberate investments to support our innovation pipeline and savings driven by efficiencies from our new media agency partnership announced in Q3 of fiscal '24. Rounding out beer operating margin drivers, we anticipate SG&A as a percent of net sales to be approximately 5%, in line with the medium-term algorithm we provided during our Investor Day. All in, this implies beer operating margins of approximately 39% as our Beer Business continues to generate best-in-class operating margins and year-over-year improvement as we close in on our medium-term targets. For our Wine & Spirits business operating income, we anticipate an overall COGS increase of mid to high-single-digits driven by less favorable fixed cost absorption as a result of lower volumes and higher seller overhead and blend costs, partially offset by favorability in logistics and packaging costs as part of our cost savings initiatives. For marketing and other SG&A expense as a percent of net sales, we anticipate 9% and 10%, respectively, each slightly above our medium-term outlook driven by the adjustments to our marketing, pricing, and sales investments to drive top line growth and partially offset by organizational structure changes, both points previously referenced by Bill. In addition, we expect to face headwinds from unfavorable lapping of contractual distributor payments and lower compensation and benefits in FY'24. That said, this implies Wine & Spirits operating margins to contract to approximately 20% in fiscal '25 as we continue to navigate category headwinds and reset investments in certain marketing and sales activities. We believe our enhanced focus on execution and planned cost savings can provide margin improvement over the medium-term toward the targets outlined at our Investor Day in November. Corporate expense is anticipated to increase slightly as we continue to invest in the business while reducing third-party fees more broadly. We expect interest expense to be approximately $445 million to $455 million driven by higher weighted average interest rates, and we expect our comparable effective tax rate to remain unchanged coming in at approximately 18.5%. We expect non-controlling interest to be about $35 million and anticipated weighted average diluted shares outstanding for fiscal '25 to be around 183 million, inclusive of share repurchase activity. Based on these assumptions, we expect our reported EPS to be between $13.40 and $13.70 and our comparable EPS to be between $13.50 and $13.80, representing a 10% midpoint increase year-over-year. From a cash flow perspective, we expect our free cash flow in fiscal '25 to be between $1.4 billion and $1.5 billion, reflective of $2.8 billion to $3 billion of operating cash flow net of CapEx spend of $1.4 billion to $1.5 billion, driven primarily by the expansions of our existing breweries and the ongoing construction in Veracruz. We anticipate approximately $3 billion of remaining CapEx spend from fiscal '25 to fiscal '28, with fiscal '25 expected to be the peak spend year as we progress with the construction of our greenfield site in Veracruz. And consistent with our Investor Day messaging, we expect a step-up in free cash flow that should yield cumulatively between $7 billion to $9 billion from fiscal '26 to fiscal '28. To conclude, we ended fiscal '24 with strong results, driven by continued outstanding growth in our Beer Business, as its core brands reach new milestones in cases sold and market share. Our Wine & Spirits business faced difficult marketing conditions in FY'24, but we've identified key actions to improve execution and performance. As we look ahead to fiscal '25, we are confident that we can deliver against our plan with strong enterprise results aligned with our medium-term targets, execute our capital allocation priorities and seek to create value for our shareholders. We thank you for your ongoing support throughout fiscal '24 and look forward to updating you on our progress and success in fiscal '25. With that, Bill and I are happy to answer your questions. Operator: Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question today comes from the line of Dara Mohsenian with Morgan Stanley. Please proceed with your question. Hi, questioner. So we lost that questioner. Moving on to our next questioner is coming from Nik Modi with RBC Capital Markets. Please proceed with your question. Nik Modi: Thanks. Good morning, everyone. Just two quick ones for me. Just been getting a lot of questions about gross margin and wanted to get any perspective on if there's any one-time issues that might have affected the gross margin this quarter for beer. And then the second part of that is just when you think about the shipments this quarter, can you give us any context on how much might have been attributable to some, whether it be the Aguas Frescas launch into wholesale or preparing for some of the shelf resets that would be helpful. Thank you. Garth Hankinson: Yeah, Nick, I'll try to address both of those. First on the gross margins, as we laid out in our press release, we did have a bit of a write-off of a bad accrual as it relates to bad receivables in Q4. That impacted our Q4 operating margin by about 100 basis points. Obviously, that would have hit gross margin as well, and that impacted the full year by about 30 basis points, again, at the operating profit margin. As it relates to Q4 impact of Aguas Frescas' launch, very, very minimal impact, really just the strength of the portfolio more broadly is what drove Q4. Operator: Thank you. The next question is coming from the line of Dara Mohsenian with Morgan Stanley. Please proceed with your question. Dara Mohsenian: Hey, guys. Second attempt. Can you hear me? Bill Newlands: Second time is the charm, Dara. Dara Mohsenian: Okay, great. So I wanted to touch on beer depletions, the nearest 7% result in the quarter, ex the extra day. It's a pretty solid result considering the weather. Can you just give us any sense for momentum so far in March and April when the weather normalized or maybe how big a drag January was in Q4? Just give us sort of a sense of underlying trends. And just on market share, you mentioned the shelf space gains being disproportionate this year, post-Bud Light struggles. How much of a positive impact are you expecting from that, and can you juxtapose that versus the risk that Bud Light trends get better, and you see some direct impact on your brands from that? Thanks. Bill Newlands: Sure. We obviously take into account our March results with our overall expectations for the year. But I'd say, March was very consistent with what our expectations were. Everyone should keep in mind that March has two less selling days, April has two more. So we internally look at it as sort of the combo plan of those two months. With that said, we had a very comfortably strong March as we expected that we would, and think it's setting us off on a really solid year, as we said, consistent with what we said at the Investor Day in New York. As we also noted in my script, we had low-double-digit growth in our shelf sets here in the spring, greater than our growth algorithm, which is what we expected. And certainly, that's going to be one of the added values in our delivery of the total year. But as we've said, and as all of you know, incremental space, by and large, is not at the same velocity as what you have from existing velocity, because it's marginal returns. With that said, we're very pleased with the increase in our shelf position. We've said for many years, our brands really deserve it. They've averaged over $50 million per SKU in dollar return, and it certainly is reflective of what I'm sure all retailers are seeing and that our brands are driving the growth in the category. Operator: Our next question is coming from the line of Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane: Thanks, operator. Good morning, Garth. Good morning, Bill. So I guess, just stepping back, we had this question a couple of times this morning, and maybe the underlying question is just at an enterprise level we get back to being basically on algorithm for the year, but in a year where wine and spirits underdelivers beer, at least in terms of growth rate on operating profit, maybe a little faster than normal, a little help from below-the-line on interest expense. So just is it a coincidence, right, that basically there can be a hole with wine and spirits underdelivering, but there were other offsets? Or was this more a function of you all maybe making some adjustments to get to that place, whether it's pulling some savings forward or using some tax credits? I think people are just trying to understand how much manipulation or how much work you had to do to sort of make up the difference or whether this was just a coincidence. Bill Newlands: No, Bryan, we don't play with the numbers. The numbers reflected very strong results in our Beer Business. As we've said, we've had some challenges in our Wine & Spirits business. As you know, we just installed a new President of our Wine & Spirits business whose focus will be on execution. We have a number of things in this coming year that will cause it to be a bit of a reset year at the bottom line because we're lapping a number of one-time issues, but that isn't going to stop us from delivering on the enterprise-wide results that we committed to in New York and that we are reiterating today. We expect to continue to show best-of-class results. As you heard in my remarks, last year, we again were the number one growth company in Circana large companies as we have been five of the last seven years, and that is what's really driving the success of our business, not anything else. Operator: Our next question is from the line of Lauren Lieberman with Barclays. Please proceed with your question. Lauren Lieberman: Great. Thanks. Sorry. Good morning. I was just curious, you gave a lot of help and color on the Wine & Spirits, but I was just curious and we've heard in the industry more about, you spoke last quarter about promotional pressures, other manufacturers have talked about retailer destocking, seeing more inventory management at the distributor level. Just curious to hear your take on kind of the promotional environment and kind of state of the union on inventory levels within the system, knowing it's tough to have visibility within three-tier, but just curious your view on inventory in the system online? Bill Newlands: Yeah, you bet. We did see some inventory reduction this past fiscal year, particularly in Canada. There was quite a bit of inventory realignment in Canada, and certainly there has been some that we've seen in the US as well. The thing that I think is important for us to continue to focus on is we've made a number of changes. We're going to focus on those 11 brands that are really the biggest drivers of our success. That's a bit of a change. Frankly, we've probably peanut buttered our efforts a little too broadly in the past, and we're going to focus on those brands that we believe have real growth potential for the long term. We're also going to do a bit more promotional spend than we have in the past, particularly on brands like Woodbridge, where that's an important part of the consumer dynamic. A lot of work and research has been done in the last few months to make sure that we understand all the consumer dynamics around our critical brands and we will execute against those dynamics in this coming year. And I think that's reflective of an improved top line that you see this year, acknowledging there'll be a bit of a reset at the bottom line. Operator: Thank you. Our next question is from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question. Chris Carey: Hi. Good morning, everyone. So Garth, thank you for all the perspective on expectations around beer margins for the full year. Can you just perhaps expand a little bit on what specifically is driving the commodity input inflation, number one? And then secondly, if I put all this together, it does feel like maybe there's a little bit of top line leverage you're expecting or you need a little bit more savings on the G&A line to get to the low-double-digit number for the full year in the division. So maybe just help provide any context on that. So thanks on the commodities and maybe just some of the assumptions on how you're getting to the operating profit number for the full year. Thanks so much. Garth Hankinson: Yeah, so just as it relates to margins for beer I think that, first of all, I think we have to acknowledge that if you look at the past two years, and you look at the disruptions we saw to global supply chains and then the elevated inflation environment that we've been dealing with, that the improved margins, starting in the back half of our fiscal '24, and then moving forward with significant margin expansion in FY'25 to get near the low-end of our target range I think that that's no small feat. As we look forward to FY'25, we're going to face similar tailwinds and headwinds that we have for the last several years. The tailwinds, again, will be volumetric growth given the strength of our brands, as well as our typical pricing algorithm. Some of the issues that we'll face or headwinds that we'll face is that while commodity prices have certainly abated from their highs, they're certainly sort of higher still than their historical norms or near-term historical norms. And there have been a couple of commodities that have been a bit resilient in their strength, if you will, or haven't come down nearly as much as we would have hoped. So we still face those. In addition, we have the strength of the peso, which is something that we're going to continue to manage through. Fortunately, we're hedged as we enter the year against the peso at about 80%, so we're going to manage that effectively. And as you've heard us talk about extensively, both on this call and Investor Day, we have this year, as well as have had last year, an aggressive set of cost savings initiatives that will help benefit the business. So all in, I mean, we think that there's fairly significant margin expansion here, margin growth, in FY'25 as we move towards getting closer to our mid-term growth algorithm or mid-term margin algorithm. Operator: Our next question is from the line of Kaumil Gajrawala with Jefferies. Please proceed with your question. Kaumil Gajrawala: Hi. Just one quick follow-up on the shelf space question. You've gained a lot of shelf space already. Can you maybe just give a sense of how much incremental space do you expect as we think about this spring? And then secondly, it looks like the strategic or I guess the evaluation on Wine & Spirits is complete. To what degree did you consider divestments as part of it, either for pieces of that business or maybe even for the whole thing? Thanks. Bill Newlands: Sure. As I stated, Kaumil, on our -- in my primary remarks, well, low-double-digit shelf space is what we expected to get, and that's in fact what we are getting in spring resets. Obviously, it varies all over the map depending, but that's roughly what the total number is in the aggregate. And again, that's at least as much as we expected. We're very pleased with where that landed. Relative to the Wine & Spirits business, we've made this comment a number of times. The person that drinks across all three categories, beer, wine, and spirits, spends six times as much as an individual that drinks only in one of those three categories. Therefore, we continue to feel that that's important, that we are accessing significant additional consumer occasions and consumer spending by being able to play in all three of those categories. Operator: Our next question is from the line of Nadine Sarwat with Bernstein. Please proceed with your question. Nadine Sarwat: Thank you. Two interrelated questions from me. First, you obviously posted very robust beer volume growth this quarter. What are you seeing in terms of the health of the US consumer today? Any signs of the downtrading or shift in behavior? And then a second question also on the consumer. Some of your industry peers have highlighted dry January being more meaningful headwind this year. Other commentators are calling out different drinking patterns amongst younger legal drinking-age consumers. So I'd be really curious to hear what you are observing when it comes to these trends. Any changes in behavior from the consumer? Thank you. Bill Newlands: Sure, Nadine. We're very pleased with the health of our consumer. We've said many, many times, the brand loyalty that we have within our franchise is superb. And I think that's really important. I think when you put that together with the fact that, and Garth has mentioned this on a number of occasions, we've been judicious in our pricing strategy over the last few years, which is a little bit different from what some other people have done in CPG industries, but we think that's important to maintain that consumer base given the very strong loyalty that we have within our franchises. It's also important to note that the high-end, which is the only place where we compete in beer, continues to see an increase in buy rate. So that, again, speaks to the fact that the consumer continues to premiumize and we're in the perfect position to take advantage of that particular point. Relative to any consumer changes in January and so on, one of the things that we've noted a couple of times is betterment. We've done a number of things in our wine business to bring out light or lighter products like Illuminate and Kim Crawford and Bright in Meiomi. Similarly, our Corona Non-Alcoholic had a great start. It was the number one share gainer in the non-alcoholic segment and I think that does reflect some change in consumer behavior or people that are concerned about being the designated driver, but still want to enjoy an outstanding tasting beer. We're going to continue to emphasize the betterment trends as we go forward with a number of our product offerings and certainly expect Corona Non-Alcoholic to continue to grow here in this coming fiscal year as well. Operator: Our next question is from the line of Andrea Teixeira with JPMorgan. Please proceed with your question. Drew Levine: Hey, good morning. This is Drew Levine on for Andrea. Thank you for taking our questions. So just two for us, if we may. Just going back to one of the earlier questions, Bill, if you can comment maybe on depletion trends outside of California versus inside California during the quarter and how those progressed throughout the quarter. And then one for Garth. I think you mentioned roughly $200 million of cost savings for beer in fiscal '24. I think that implies a pretty meaningful step up in the fourth quarter. So if you could just talk about maybe some of the projects where you saw benefit and how we should be thinking about cost savings for fiscal '25. Thank you. Bill Newlands: Andrea, your voice got a lot lower since the last time you asked a question. All joking aside, our trends were very, very strong really across the country. A significant place, let me use Pacifico as an example, the depletions across that brand for the year were up 17%, and obviously, the big stronghold is California. Modelo Especial continues to be the number one brand in the State of California. But we're also seeing really good success across the country. Places like Texas and Florida. And secondary markets. We've always said secondary markets are going to be an important element for us. And many, many, many of those showed double-digit increases over this past year. So we were very pleased to see a broad-based growth profile for our business as we closed out the year, and we think we're in position to continue to do that here in fiscal '25. Garth, I think, the second one was for you. Garth Hankinson: Yeah, just on the roughly $205 million of cost savings that came out of Beer Business throughout the year. Yeah, that ramped up throughout the year. We started right out of the gate very strong in Q1 and again that ramped up as we went through the year. It ramped up as we went through the year really based on two factors. One is, we identified or put in place new initiatives throughout the year. But then you also benefited from -- almost from a compounding perspective for those things that started earlier in the year as well. The kinds of initiatives that we undertook last year were procurement-related in terms of various RFPs around raw materials where we were able to address some of the outsized increases that we saw over the last two years due to global supply chain disruptions as well as the inflationary environment. There was a number of logistics initiatives in terms of rail cars and double stacking and also a number of operational initiatives that were underway. Operator: Thank you. Our next question is from the line of Rob Ottenstein with Evercore. Please proceed with your question. Robert Ottenstein: Great. Thank you very much. First, could you please just remind us what your gross dollar amount of expenses that are peso-denominated are? So that would be great. And then second, looking at the scanner data and this is Circana, your price/mix has been well below the beer category over the last four, 12 weeks or so. So I'm trying to understand why that's the case. And the most of the other players took pricing kind of before or after the Super Bowl. Kind of what is the timing on your price increases this year? And again, why is your apparent realization in the scanner data less than the market and most of the other big brands? Thank you. Garth Hankinson: Yeah, so on the first one, in terms of the amount of costs that are peso-denominated for our Beer Business is about 20% to 25% of our costs are peso-denominated. As I said, as we entered this year, we're hedged at about 80%. Bill Newlands: And relative to price realization, as you know, a lot of what you see in these types of things depends on when pricing increases or pricing actions were taken. We consistently have said 1% to 2% is our pricing algorithm, and over the course of the whole year, we're still expecting to see 1% to 2% pricing actions. As you also know, Robert, we do that on a SKU-by-SKU, market-by-market basis, and therefore, you have reflections of different time frames across the year as to when that actually shows up. I don't think that's anything that we are concerned about nor any kind of an ongoing trend. And as we said, over the course of the year, we'll expect to get 1% to 2% as we've communicated we would. Operator: Our next question is from the line of Filippo Falorni with Citi. Please proceed with your question. Filippo Falorni: Hey, good morning, everyone. I had a question on the overall beer industry and your thoughts as we are about to cycle the big market share shift with the controversy around Bud Light in April of last year. Clearly, your business was growing at these rates well above before this controversy, but there are some concerns that you might have benefited from the market share shift, so maybe you can address some of the impact that you see on your business and how you're thinking about it as we start to cycle those impacts. Thank you. Bill Newlands: Well, as we've said right along, we probably were not the single biggest gainer as it related to the controversy that you know, but I'd also, again, continue to point out something I said earlier, which is, we've got extraordinarily strong brand loyalty, and we only play in the high-end. The high-end is where the growth in the category is at the moment, and we're fortunate that that's exactly where we play. When you add in the fact that we've seen a significant increase in our shelf presence here during this spring reset program, we think we're in a great position, recognizing we are coming off the single biggest share gain in the history of Constellation Brands Beer Business. Two points in all total beer and 2.6 points in the high-end. It's an unprecedented gain and I think it reflects the sheer strength of our brands. Operator: Thank you. The next question is from the line of Gerald Pascarelli with Wedbush Securities. Please proceed with your question. Gerald Pascarelli: Great. Thanks very much. Just going back to wine, Bill, the drivers you laid out in your prepared remarks were very helpful, but based on current trends, I think the outlook for the year came in above expectations, definitely above our expectations. So, I guess, in the context of two guide downs last year, if you could maybe provide some more commentary just on your level of confidence this early in the fiscal year in achieving flat revenue performance, that would be great. And then does your outlook embed the assumption that the wine category will ultimately start to improve from current levels this year? Thank you. Bill Newlands: I think, obviously, Garth and I spent a lot of time with our wine colleagues over the last few months looking carefully at what we thought was critically important. The reflection of an improved performance has several variables involved. One, we're going to work much more closely and enhance our sales capabilities to support our distributor network. I think we've gotten much more aligned as to what our intentions and expectations are, both from distributor to us and us to distributor than where we had been as we came out of last year. Second, we've refocused our priorities. There are 11 or so critical brands that did not probably have the right amount of prioritization within our overall portfolio, and we have radically addressed that. Third, we're going after efficiencies within the business, and we think there are those to be had. As you know, that was a tremendous success last year in our Beer Business, and we're putting some of the same resources against our Wine & Spirits business that helped generate that very strong result last year. So there's a number of elements that we are putting in place recognizing this is going to be a bit of a reset year, particularly at the bottom line for the wine business. However, again, we've said, we think the strategy is sound, it's right, it's going to get us to our medium-term algorithms as we go forward, and at this point, it's all about execution. And I think Sam Glaetzer and the rest of the team are going to be crystal focused on execution against our strategy. Operator: Thank you. Our next question is from the line of Carlos Laboy with HSBC. Please proceed with your question. Carlos Laboy: Yes, good morning, everyone. Can you please expand further on the state of on-premise activity that you saw towards your end, and more important, currently? Bill Newlands: You bet, Carlos. I think you saw some interesting volatility, depends on the particular time frame, and we saw some of that. We had an issue for a brief period during this year where we had some issues with kegs, which is now fully behind us. We're continuing to see strong development in the on-premise, and we're particularly excited about it heading into Cinco, which is obviously the next big time frame for us, and a time frame when we historically have done very well and made significant share gains, both in the retail and in the on-premise environment. So we're very optimistic that the on-premise is going to be an important part of what our results are this year. Both Modelo, Corona, Extra and Pacifico are all growing share in that channel and we expect that that continued share of growth is going to continue in this fiscal year. Operator: Thank you. At this time, we've reached the end of the question-and-answer session, and I'll hand the floor back to Bill Newlands for closing remarks. Bill Newlands: Thank you, Rob, and thank you to all who joined today's call. As we wrap up, I want to, once again, thank our colleagues across Constellation, as well as our trade partners, for delivering another strong year of performance in fiscal '24. Your continued focus and discipline has made Constellation a top-performing growth leader among CPG companies for 11 consecutive years. No other company in recent times can say that, and we're extremely proud of this achievement. As we head into fiscal '25, we're confident in our ability to further build on our momentum and to create additional shareholder value by delivering low-double-digit EPS growth, fueled primarily by our Beer Business, which we expect to generate high-single-digit net sales growth and best-in-class operating margins. Heightened focus on our commercial and operational execution in our Wine & Spirits business, while maintaining our disciplined approach to capital allocation and continuing to serve as good stewards of our environment and the communities where we operate. As we approach the key summer selling season, we invite you to enjoy some of our great-tasting products as part of your festivities, and we look forward to speaking with you again on our next quarterly call. Thank you very much, and have a good day, everybody. Operator: This will conclude today's conference. Thank you for your participation. Have a wonderful day.

Operator: Greetings. Welcome to the Constellation Brands Third Quarter Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Joseph Suarez, Senior Vice President of Investor Relations. Thank you. You may begin. Joseph Suarez: Thank you, Darryl. Good morning all and happy new year. Welcome to Constellation Brands Q3 fiscal '24 conference call. I'm here this morning with Bill Newlands, our CEO, and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements made on this call. Following the call, we'll also be making available in the Investors section of our company's website, a series of slides with key highlights of the prepared remarks shared by Bill and Garth in today's call. Before turning the call over to Bill, in line with prior quarters, I'd like to ask that we limit everyone to one question per person, which will help us to end our call on time. Thanks in advance. And now, here's Bill. Bill Newlands: Thank you, Joe, and congratulations on your recent promotion. And good morning all. Happy New Year to everyone, and welcome to our Q3 fiscal '24 call. I hope you all had a wonderful holiday season and were able to enjoy some of our great products with your family and friends. We have several topics to address on today's call. So let's start with the key takeaways for this quarter. First, I am pleased to report that our Beer business again delivered very strong performance that accelerated throughout Q3. We achieved depletion growth of over 8% for our beer portfolio with a particularly outstanding end to the month of November. We led Thanksgiving beer sales in US-tracked channels and continued to see accelerating momentum in the last week of the month, reflecting both ongoing strong consumer demand and restocking after the earlier Thanksgiving holiday this year. And once again, for another entire quarter, we achieved leading share gains in tracked channels with more than 2 point expansion in the US beer category and a nearly 3 point gain in the higher-end. This marks the 55th consecutive quarter of depletion growth for our Beer business and the 10th leading share gains. Secondly, in line with our consistent disciplined and balanced approach to capital allocation, we executed $215 million of share repurchases in Q3, while maintaining our net leverage ratio excluding Canopy equity and earnings unchanged from last quarter at 3.2 times as well as continuing to deliver cash returns through our dividend and advancing our organic growth investments at our Obregon brewery, a new brewery site in Veracruz to support additional production capacity for our Beer business. And thirdly, as noted at our recent Investor Day, over the past few months, our Wine & Spirits business, much like others across the industry, has seen a broader marketplace deceleration. In light of these and other near-term headwinds, we are further revising our fiscal '24 organic net sales guidance for Wine & Spirits to be down 7% to 9% and the operating income guidance for that business excluding gross profit, less marketing of brands divested last year, to be down 6% to 8%, which I will elaborate on shortly. Of course, we are not pleased with these revisions at both our leadership team and our Wine & Spirits teams remain fully committed to improving the performance of this business and to achieving its medium-term targets. In addition, as announced earlier today, Robert Hanson has elected to step down from his role as President of our Wine & Spirits business in a few weeks at the end of the current fiscal year. We have initiated a process to identify a successor for this role and I will step into lead the Wine & Spirits business in the interim, while of course, retaining my Chief Executive oversight across both the enterprise and our Beer business. Despite these revisions and leadership changes, as noted at our recent Investor Day, we continue to believe that over the medium term, our Wine & Spirits business should accelerate its net sales growth to 1% to 3% and improve operating margins to 25% to 26%, supported by the significant transformation undertaken over the last few years to better align our portfolio with broader consumer-led premiumization trends, expand our omnichannel capabilities and extend into targeted international markets. More importantly, in fiscal '24, we still expect our enterprise comparable EPS guidance excluding Canopy to remain within our previously stated range of $12.00 to $12.20. And over the medium term, we continue to expect low double-digit EPS growth as outlined at our Investor Day. Now let's step through these key points for Q3 in more detail. As noted, our beer team once again delivered remarkable results. Modelo Especial led to charge, achieving a roughly 12% increase in depletions and remained the leading share gaining brand in tracked channel dollar sales, strengthening its position as the number one beer brand in the US market having ultimately achieved that top spot now on a 52-week basis. The broader Modelo brand family also delivered phenomenal results. Cheladas achieved an increase in depletions of approximately 22% year-over-year in Q3. And on a rolling 12-month basis, the combined set of Chelada flavors and pack sizes reached the 20 million case milestone, which is over 350% more than that set of brands was doing just five years ago in fiscal '19. Additionally, Modelo Chelada Especial, our original flavor, which was recently launched in a 12-pack 12-ounce format was a top 15 share gainer in Circana in Q3, and we are excited about the opportunities ahead for our new Chelada flavor and pack size additions. Also in the Modelo family, Oro, continued its strong first year of going national with a third quarter as a top five share gainer in the high-end. We look forward to the growth opportunities ahead for Oro as awareness grows and we introduce new pack sizes next fiscal year. Beyond Modelo, our Corona Extra and Pacifico core beer brands continued to perform strongly in Q3. Corona Extra maintained depletion growth at about 1%, while Pacifico delivered an outstanding 19% increase. And on a rolling 12-month basis, Pacifico also reached the 20 million case milestone, double its volume from five years ago. In addition, both brands remained top 10 share gainers across the entire US beer market in tracked dollar sales. Our beer brands clearly continued to resonate strongly with the consumer, and I'm incredibly proud of and thankful to our entire beer team for their consistently strong execution. With that backdrop, we remain confident in our fiscal '24 net sales growth guidance of 8% to 9%. And from an operating income guidance perspective, we now expect our beer business to deliver 7% to 8% growth for fiscal '24 as we realize additional benefits this year from the marketing effectiveness actions discussed during our Investor Day. Over the medium term, we still see significant opportunities to continue to achieve net sales growth of 7% to 9% in our Beer business supported by the fundamental distribution, innovation and demographic drivers, as well as consumer-led trends also discussed at our recent Investor Day, as well as to continue to achieve best-in-class operating margins of 39% to 40% supported by savings and efficiency initiatives across our cost of goods sold, marketing, and broader SG&A. And last but not least, we continue to support the growth of our Beer business through modular investments in brewing capacity and productivity initiatives to unlock further production upside. Moving on to the Wine & Spirits business. As noted earlier, our Wine & Spirits business is operating amid a broader marketplace deceleration. As we have shared in recent quarters, we are actively working to address mainstream headwinds affecting our two largest volume brands Woodbridge and SVEDKA. However, we anticipate these efforts to extend beyond fiscal '24. More broadly, while we are maintaining a disciplined approach to taking price across our portfolio, the competitive environment is now getting pressured with more aggressive discounting and price points beyond mainstream. Again, we believe the broader deceleration in these higher-end categories to be temporary and have continued to execute strategic pricing actions instead of implementing reductions like certain competitors. In addition, we have made the decision to adjust some aspects of our US wholesale distributor agreements focused on improving mix, inventory, and state and channel level sales execution. We are actively engaged with our largest distributor partner to ensure that our portfolio continues to make progress against our vision of leading the higher-end as well as on the revitalization of our mainstream brands. From an international perspective, while we experienced a decline in the quarter driven by previously noted weakness in our more mature markets, inventory levels in Canada, our largest export market, seem to now be normalizing following the destocking from recent changes to inventory regulations. So we anticipate more balanced supply-and-demand dynamics for this market going forward. Importantly, despite the impact of these near-term headwinds on organic net sales, our prudent pricing and cost efficiency efforts enabled margin improvement for Wine & Spirits in Q3. Beyond these near-term challenges, our focus remains on driving growth across our higher-end brands. As shared during Investor Day, over the last few years, our Wine & Spirits business has established a stronger foundation to advance toward these targets. Since fiscal '19, we have doubled the number of fine wine and craft spirits brands in our portfolio and we have invested and expanded our footprint in higher-growth DTC channels in targeted international markets. With our structural transformation securely in place, I want to thank Robert Hanson for his contributions over many years including initially as a non-executive member of the Board. We wish Robert well and all the best in his future endeavors and look forward to announcing the appointment of our next Wine & Spirits business President in the near future. Lastly, I'd like to emphasize again our unwavering commitment to our consistent, balanced, and disciplined approach to capital allocation. As noted at our Investor Day event, we continued to target a strong balance sheet that supports our investment-grade rating and we are working toward a net leverage ratio of 3 times which we expect to achieve within fiscal '25. We expect to maintain a dividend payout ratio of approximately 30%, supporting continued growth of our dividend per share in line with our earnings expectations. We plan to invest approximately $5 billion in growth and maintenance CapEx from fiscal '24 to fiscal '28, primarily focused on brewing capacity expansions for our beer business. We continue to opportunistically buy back shares with $215 million repurchased in Q3, which leaves us with an additional $2.6 billion still within our existing share repurchase authorization. And finally, we continued to look at tuck-in gap-filling M&A opportunities with a highly rigorous transaction criteria. So to close, let's go back to the key takeaways for the quarter. First, we have a beer portfolio and team that consistently delivers industry-leading performance and we see significant opportunities as outlined at our Investor Day to continue to drive similarly strong growth over the medium term. Second, we remain committed to delivering value to our shareholders through consistent execution of our balanced and disciplined capital allocation priorities and third, our Wine & Spirits business is focused on realizing net sales growth and improved operating margins by leveraging its reshaped higher-end leaning portfolio as well as our enhanced DTC channel and international market footprints and capability. And lastly and importantly, we continue to expect our enterprise comparable EPS guidance in fiscal '24 excluding Canopy to remain within our previously-stated range of $12.00 to $12.20. And over the medium-term, we continue to expect low double-digit EPS growth as we outlined at our Investor Day. And with that, I will now turn the call over to Garth, who will review our financial results in greater detail. Garth? Garth Hankinson: Thank you, Bill, and good morning, everyone. As usual, my discussion on our financial performance will mainly focus on comparable basis results and stepping through our P&L. However, as of this quarter, we will discuss enterprise results, followed by business segment detail to better address our performance against the outlook shared at our Investor Day at these different levels. Beginning with net sales. We achieved enterprise-wide top line growth of 1% for the quarter. This was the result of solid Beer net sales growth of 4%, partially offset by the Wine & Spirits net sales decline of 8%. Wine & Spirits net sales decline was 7% on an organic basis. As Bill noted, Beer business depletions for the quarter were above 8% as the year-over-year growth momentum from summer continued through the fall, supported by ongoing strong consumer demand of our portfolio. Again, we saw a particular acceleration in depletion volumes at the end of November as we extended our leadership across key holidays with outstanding performance during US Thanksgiving. Our on-premise channel realized modest growth in depletions of about 1% for Q3 and accounted for approximately 11% of our total volumes as we've been able to replenish inventories following the keg disruption over the summer and began to advance growth and drive performance in the on-premise. Shipment volumes for beer business grew 3.4%, and we achieved favorable pricing slightly above 1% as we began to lap the elevated pricing increases from last fall. These volume and pricing uplifts were partially offset by a shift in packaging mix. Altogether, these year-over-year shipment, pricing and mix changes drove the 4% or approximately $77 million increase in beer net sales for the quarter. For our Wine & Spirits business, organic net sales declined 7%, driven by lower shipment volumes due to the previously referenced category headwinds and the change in our process aimed at aligning shipments and depletions. As a reminder, per prior calls this year, we now make quarterly shipment adjustments to align with depletions versus our former practice of only doing one annual adjustment in the fourth fiscal quarter. We believe this process change has partially driven less favorable comparisons for the first three quarters of fiscal 2024. Now shifting to operating margins. For Q3, enterprise-wide operating income increased 7%, and operating margin increased 170 basis points to 32.3%. This was primarily a result of an increase in operating income of 7% for our Beer business, which also drove a 100 basis point increase in Beer business operating margin to 38.5%. Enterprise-wide operating margins also benefited from a 13% reduction in corporate expense. These Beer business and corporate expense tailwinds were partially offset by a 5% decrease in our Wine & Spirits business operating income, which still yielded a 60 basis point increase in operating margin to 25.4% for the Wine & Spirits business. Excluding the gross profit, less marketing, of the brands that are no longer part of the business following their divestiture, operating income and operating margin for the Wine & Spirits business decreased by 4% and increased by 80 basis points, respectively. Stepping through these drivers in more detail, starting with beer. The increase in operating income and margin were a result of benefits and cost of products sold as we continue to build cost efficiency and productivity savings. For the quarter, total cost savings were approximately $55 million. An $11 million or a 6% decrease in marketing costs as a result of shifts in timing of spend. Note that marketing as a percent of net sales was 8.7% for the quarter. A $4 million decrease in SG&A expense, primarily driven by lower legal fees, partially offset by higher compensation and benefit expenses and $6 million of favorability from the divestiture of our craft beer business. These benefits were partially offset by a $12 million unfavorable foreign currency impact as we still realized a higher Mexican peso rate year-over-year, inclusive of our multiyear hedging positions. Additionally, in line with our full year expectations and guidance we are still facing higher costs in our packaging and raw materials, which resulted in a $17 million headwind for the quarter. We have also faced an $11 million increase in depreciation as a result of our capacity expansions. The reduction in our corporate expense, which for the quarter was $10 million, was primarily driven by the reduction in third-party services, particularly in our digital business acceleration investments partially offset by increased compensation and benefits. Our Wine & Spirits operating income margin, excluding the gross profit less marketing of the brands that are no longer part of the business following last year's divestiture had a year-over-year improvement as the volume declines and unfavorable mix were more than offset by reduced logistics and warehousing costs, favorable SG&A costs due to reduced third-party consulting expenses and lower compensation and benefits. More favorable material costs driven by our cost savings initiatives and reduced marketing expense as we continue to shift our marketing focus towards more efficient, high return efforts. Interest expense for the quarter was approximately $104 million, driven by higher average borrowings and higher weighted average interest rates. As a reminder, approximately 5% of our debt obligations are subject to adjustable rates. As Bill noted, we ended the quarter with a net leverage ratio of approximately 3.2 times excluding Canopy equity and earnings and remain on track to reach our target goal of 3 times within fiscal 2025. Our comparable effective tax rate, excluding Canopy equity and earnings for the quarter was 18% versus 18.8% last year. Our comparable EPS for the quarter, excluding Canopy equity and earnings, was $3.24, reflecting the consistent growth of our business and representing an 8% increase. Moving to free cash flow, which we define as net cash provided by operating activities less CapEx, we generated free cash flow of $1.4 billion through the first three quarters of fiscal 2024 and a 10% decrease driven by a 33% increase in CapEx investments attributable to the expansions at our existing Obregon facility and the construction of our new brewery located in Veracruz. As we look towards the end of fiscal '24, our guidance for enterprise comparable EPS, excluding Canopy equity and earnings remains unchanged at $12 to $12.20 underpinned by the following expectations. First, an unchanged 8% to 9% net sales growth outlook but a higher 7% to 8% operating income growth expectation for our Beer business. As stated in our prior calls this year and at our recent Investor Day event for our beer net sales, we continue to expect pricing to be between 1% to 2% and mid to high single-digit volume growth in fiscal '24. And we still anticipate shipment volumes for the second half to account for approximately 45% of the full year total. Bill already addressed the drivers of the uplift in our beer operating income growth guidance but it's also important to note that we still expect beer operating margin to be approximately 38% for the full year. Second, for our Wine & Spirits business, we now expect a decline of 7% to 9% in organic net sales and a decline of 6% to 8% in operating income, excluding the impact of the divested wine brands that are no longer part of our results. Bill also already addressed the drivers for these revisions. Third, from a corporate expense perspective, we now expect that to be approximately $260 million to $270 million for the full year which includes a slightly lower end to the range versus our prior expectation. And similarly, our interest expense expectations are now slightly lower at approximately $450 million. And last but not least, we continue to expect our comparable effective tax rate, excluding Canopy, to be approximately 19% and despite the additional $215 million of share repurchases executed in the third quarter, we also continue to anticipate weighted average diluted shares outstanding to be approximately $184 million. Beyond the P&L, for free cash flow, we expect to be in the range of $1.4 billion to $1.5 billion for fiscal '24, reflective of $2.6 billion to $2.8 billion in operating cash flow and $1.2 billion to $1.3 billion of CapEx. In closing, we continue to deliver industry-leading results in our beer business and remain confident in our ability to achieve our stated EPS targets for this fiscal year despite incremental category headwinds affecting our Wine & Spirits business. As we look further ahead, we remain excited about continuing opportunities to build shareholder value over the medium term, which we hope to achieve by capturing the substantial growth opportunities that exist for our Beer business, executing against our consistent, disciplined and balanced capital allocation priorities and delivering enhanced performance in Wine & Spirits, supported by the significant transformation that business has undergone and the actions that we are taking to improve this business. We encourage existing and prospective shareholders who have not yet had an opportunity to review our recent Investor Day presentations to access those through our Investor Relations website, ir.cbrands.com to gain further insights into our medium-term perspective on these topics. And with that, Bill and I are happy to take your questions. Operator: Thank you. We will now be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Nik Modi with RBC Capital Markets. Please proceed with your question. Nik Modi: Thank you. Good morning, everyone and Happy New Year. Bill Newlands: Same to you. Nik Modi: So, Bill, maybe you can provide some context. Obviously, you provided a few intra-quarter updates, one at the Analyst Day and one at the Morgan Stanley conference. Just regarding both the Beer and the Wine & Spirits business and obviously things came out a little bit differently. So I was hoping you can just kind of give us a perspective on what exactly happened to cause some of the delta. And if some of the clarity or perspective you gave us around the gaps between scanner data and your actual results, how we should think about that because I'm sure that's going to be something we're all going to have to start thinking about over the next couple of weeks? Bill Newlands: Sure. Thanks, Nick. And again, Happy New Year to you. As we said in our prepared remarks, we're obviously very pleased with our Beer business in Q3 and we are particularly happy with the strong acceleration in the momentum that sort of came out of November. Interestingly enough, the delta between Circana and our numbers sort of changed about the minute Garth stopped speaking at the conference in November. So that was always interesting how that works. As we've noted, we expect about 45% of our Beer business volumes will be achieved in H2, which is in line with the normal seasonality of that business. And for Q4 specifically, we expect those shipments in depletes will end up being about 20% to 21% of our total fiscal year volumes. But we also expect that we're going to continue to drive mid to high single-digit volume growth annually, which is consistent with the depletion performance that we've now achieved for over a decade. And again, that's consistent with what we've also said, 1% to 2% annual average pricing increases, which supports the 7% to 9% annual net sales algorithm that we've said we will do in the medium term. On the Wine & Spirits side, obviously, we're further revising our guidance down, was not a decision we took lightly, and we're certainly not happy about it. We examined numerous scenarios and ultimately determined the adjustment was really needed to reflect a number of things. The broader category deceleration and other factors that affected our performance including gaps from our prior US wholesale expectations that we're actively addressing with our distributor partners and importantly, while making sure we maintain an appropriate inventory level for the remainder of this year, setting ourselves in good position to see sequential improvement in fiscal '25. Of course, as I said, we're not pleased with these revisions, and neither is our leadership team nor our Wine & Spirits team, but we're certainly committed to improving that performance in the medium term and expect that our net sales and operating margin targets will be consistent with what we said at Investor Day. As you've also seen, I'm going to be temporarily taking over that business, and I will be spending a fair amount of time with the Wine & Spirits division as we work through the process of appointing a new leader, which we have already started considering both internal and external candidates. As you probably know better than many, I spent several years of my career within the Wine & Spirits categories, and I look forward to working more closely with that team in the interim, particularly as that business turns its focus toward enhancing operational effectiveness and marketplace execution to build on the reconstituted higher-end portfolio and organizational structure that we put in place over the last few years. But ultimately, and I'd like to, Nik, reiterate this one more time. In fiscal '24, we still expect our enterprise EPS guidance to remain within our previously stated range of $12.00 to $12.20 and over the medium term, we also continue to expect low digit EPS growth, as outlined at Investor Day. Hopefully, that gives you some good perspective on those elements you asked about. Operator: Thank you. Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question. Bonnie Herzog: All right. Thank you. Good morning and Happy New Year, everyone. I wanted to drill down a bit more on your beer margins. Bill and Garth, you raised your fiscal year beer operating income growth guidance. But this does still imply very low op margins in Q4. So I guess I'd like to better understand the drivers of this. And really how much visibility you have in terms of whether it's your marketing expense or commodities, hedges, et cetera, for the rest of this fiscal year? And then perhaps any color on how margins should be phasing next fiscal year would be helpful. Thanks. Garth Hankinson: Bonnie, just to start on the question for next fiscal year, obviously, we'll give guidance on next fiscal year at our next conference call in April. But as it relates to margins this year, I mean, obviously, margins are progressing in line with what our expectations are. And what you saw in the third quarter, this is the first time from a year-over-year perspective where we had margin improvement which again is what we expected at the outset of the year. What we've always said about margins is, and this ties back to what we've said about volumes and shipments and depletions is 55% of our activity will occur in the first half of the year and 45% in the second half of the year. And in Q4, specific to your question on Q4, that -- it's always typically one of our lower shipping quarters. And so therefore, margins are lower just by virtue of reduced throughput through our facilities. On top of that, we continue to have increasing depreciation costs that we referenced during our prepared remarks. But as I say, I mean, we do expect that Q4 margins this year will be better than they were of last year, continuing the trend of year-over-year improvement and which, obviously, we feel confident about our ability to get back into our 39% to 40% range as we went into very good detail at our Investor Day. Operator: Thank you. Our next question comes from the line of Kaumil Gajrawala with Jefferies. Please proceed with your question. Kaumil Gajrawala: Hi, guys. Good morning. You're depleting -- right now, you had a run rate of about 8%, or I guess you did 8% for the quarter. There's expectations for some pretty good shelf space gain in April. Could you give some context on what that might mean for a tick-up in depletion? Bill Newlands: Well, here's what I'd say about that. As we said earlier, we were very pleased with the 8.2% that we got in the quarter, and we finished November very, very strong. And certainly, we were up, as you would have expected, that strong performance in late November continued into December. So we're very excited about our ability to continue to see exceptional depletions as we move into this calendar year and soon into the new fiscal year. The important thing to me is we continue to gain share. Our two share point gains that you saw in the overall category, nearly three in the high end, continue to be industry leading and are frankly an acceleration of what our share gains had been earlier in the year. So we're very comfortable again, 79% top line driven by mid-plus single-digit growth profile, which we've said we see the runway on that for a long time to come. And certainly this quarter and certainly our expectations for the rest of the year are consistent with that. Operator: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane: Thanks, Operator. Good morning, everyone. I wanted to go back, Bill, and just ask a bit about the management transition in Wine & Spirits. And I guess, a, what are you looking for? Like, what are the attributes or the skill set that you think is needed? And then if you could just maybe separate how much of the focus on wine or how much of the improvement path is going to be dependent on uncontrollable? So just the category improving and how much of it is, you think, things that are controllable, things that -- execution elements or things that the Constellation can do to improve? Bill Newlands: Sure, thanks for the question, Brian. I'd say this, our transformation of that business is largely complete. As we've said now a number of times, it's a very different business than what it was several years ago, even though we still have a fair amount of business in the lower end of the business. What I would say is this. We will be focused on an individual who can bring great operating efficiencies and execution in the marketplace. We think it's critically important that we improve our wholesale performance in the United States, and we think there's going to be continuing opportunities for us to perform very well in DTC and international channels as we have developed that business over the last couple of years. All of those things, I would argue, are well within our control. A lot of work is being done on the mainstream portion of the business, particularly on SVEDKA and Woodbridge to enhance the performance of those businesses. I think that you will start to see that play out in the new fiscal year. And we believe that -- we believe some of the softening that's occurred in the overall business is transitory and will come back our way, given the real strength that we've seen in our higher-end business like Meiomi and Kim Crawford and the Prisoner and Mi Campo and things of that nature. So I'm always of the belief that a significant portion of your results are really within your control and we're going to focus on those critical factors that improve our business performance as we head into the new fiscal year. Operator: Thank you. Our next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your question. Nadine Sarwat: Hi everybody, thank you for taking my questions. A two-parter for me. First, you obviously have posted really good beer depletions this quarter, but looking at 2023 for the overall industry, US beer has been weaker than the historical plus or minus 1% that we've seen over the last decade. I'd love to hear your thoughts in your experience why you think that is. Any key takeaways to share on the health of the consumer? And what would you expect to see for the industry as a whole in ‘24? And then finally, just to come back to Wine & Spirits again, good to hear you reiterating that medium-term growth algorithm you disclosed at the Investor Day. But would it be possible for you to share more details as to how -- where that conviction and achieving that is given the guidance kept today, any building blocks. I appreciate the initiatives you mentioned, but clearly the gap between the guidance for this fiscal year and that medium growth algo is quite big now. So any color would be appreciated. Thank you. Bill Newlands: Sure. So let's start with the overall beer market. One of the things that we've seen and it's accelerated a bit is the separation between the low end and the high end in the beer market. The high end continues to be where the strength is and we continue to be the leader in the high end, gaining almost 3 share points in the most recent period. Part of that is driven, I think, by a couple of things. One is we have such a strong base with the Hispanic consumer where beer remains a critical part of their consumption pattern. Our brands have great brand loyalty. And again, that's very valuable to us as time goes forward. But one of the things that we also noted, let's take the light beer category. While there's been a lot of movement within that category within brands, the overall sector is not overly healthy. It's down. And we've noted that continuously. So I think the important part as you think about the overall beer sector is to look at it bifurcated. The low end has not been successful and has been challenged on a volumetric basis, but the high end continues to perform well and we're fortunate that we are leading at the high end. As it relates to the Wine & Spirits, what I'd like to do on that particular point, given I'm about to do a major deep dive into that business, is we'll come back to you with more details on where we see our progress going to occur in that particular business when we do our next earnings call at the beginning of the new fiscal year. What I would say is this. We're going to be focused -- very, very focused, on execution and working closely with our distribution partners to make sure that we are outperforming the categories in which we play through our distributor network. That's going to be an important part of our ongoing success going forward, and it will be a critical part of where I'm spending my time. Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo. Please proceed with your question. Chris Carey: Hi, good morning. Bill Newlands: Good morning. Garth Hankinson: Hi, Chris. Chris Carey: Garth, the beer savings number that you called out, which I believe was $55 million, is a big number, certainly in the context of the savings targets through fiscal ‘28 that you laid out at Investor Day. And so I guess, are you pulling forward savings into fiscal ‘24 from other years, or are you perhaps just getting better at the ability to drive savings in the near term and perhaps we should be thinking about over-delivery or maybe just building more confidence in your ability to hit those targets over time? So again, I'm just trying to get some context for your self-help capacity in the beer gross margin, which was quite strong this quarter. Garth Hankinson: Chris, thanks for the question. And I guess the short answer to our question is no, we're not pulling anything forward from future years in FY ‘24. I do think that what you're seeing this year is a continuation of a couple things. One which we detailed at Investor Day, which is the shift from us from being builders of breweries to operators of breweries. And so we're getting more efficient, we're doing a better job from an end-to-end supply chain, and that's what gave us the confidence not just in this year, but in the cost savings targets that we laid out at Investor Day. Another thing that we're seeing benefits from is out of our digital business acceleration activities, which have been coupled with the discipline that we're creating on an end-to-end supply chain and it's driven significant savings in a whole host of areas as it relates to procurement. So again, it is somewhat new muscle that we're building, really more an extension of existing muscle as we, again, migrate from being builders to operators. Operator: Thank you. Our next question comes from the line of Dara Mohsenian with Morgan Stanley. Please proceed with your question. Dara Mohsenian: Hey, guys. Just two follow-ups probably on Nik's question. Just first on beer, just to understand the strength and depletions at the end of the quarter. Is that more underlying strength? Was there anything timing related there? Is it continued in December? Should we look at sort of the 8% result in the quarter as sort of a true underlying gauge of the business, at least short-term, understanding that's not the guidance, but how should we think about that? And I know it's tough to talk about the gap versus scanner data. Obviously, it bounces around. But just any specific thoughts on what that could be going forward? And then I also have a wine question, if I can follow up on that. Bill Newlands: Dara, why don't you do that right away? Because usually once you ask a question, you don't have further access. What's your wine question? Dara Mohsenian: Okay. I mean, just look, the comments on the revision were helpful in the longer-term portfolio transformation, but at the risk of being blunt, it's been sort of years of disappointment on that business. It's a pretty large negative revision after Analyst Day in a short period of time. So I just wanted to hear a little more about the response, Bill, and how you might manage that business differently from a strategic lens longer term, perhaps a greater focus on productivity or whatever the changes are. But how do you think about managing the business differently and maybe how it fits in the portfolio just juxtaposition versus what's a very attractive beer business as we saw again this morning from a growth and margin standpoint. Bill Newlands: Sure. So let's cover the first one initially about the depletions coming out of the quarter. Obviously, there's always a little bit of benefit when you have an early Thanksgiving because you give retailers a chance to restock after Thanksgiving. But let's make no mistake, the takeout that we had around the Thanksgiving holiday was exceptional, which you wouldn't get the great restocking if you didn't have an exceptional takeout period. And obviously we're very pleased to see, without going into specifics, that the strong November is playing into December as we expected it would because the underlying trends for our business remain very strong. And as I stated at an earlier question, our actual share gains have accelerated during the course of the year, which I think is very positive as well relative to our continuing success in that business. As it relates to wine, as I said before, the thing that we were most concerned about coming out of this particular quarter is that we end our year in an appropriate inventory position and that we are preparing ourselves to work closely with our wholesale distributor partners to accelerate that business going forward so that we are winning in the categories and channels in which we participate. We've got a lot of work to do there, but we continue to believe the strategy work that's been done over the past few years to reposition our portfolio much more to the higher end is going to pay dividends. And again, as I said, I think, to Nadine a moment ago, I'll come back with some more specific thinking. We're going to do, as you can understand, a fairly deep dive into that business. And I'll have some more thoughts on that as we get to our next call. Garth Hankinson: And, Dara, as it relates to the gaps in Circana versus depletions, and as you mentioned in your question, it can be a bit difficult to draw parallels between the two. Look, for the balance of the year going forward -- for at least the balance of the year going forward, and we'll give updates on this as we see fit, but I think you still have to think about that gap being in the mid-single-digits. That being said, I'll kind of remind everybody of the comments we made at [your] (ph) conference last month, which is, we think that looking at this, that syndicated consumer takeaway data is really best to gauge long-term trends as well as relative performance. Just as a reminder, for our own business, Circana only picks up 50% of our total volumes, and there are certainly gaps between the volume growth of different tracked channel data providers. And importantly, you don't see things picked up per se as it relates to differences in time periods, meaning there can be shifts between key weekends or holidays between period to period that make it hard to tie depletions with the Circana data. So again, this is not -- we don't use the syndicated consumer takeaway data the way that you do, and that's why we say it's not necessarily the best way to gauge our business. Operator: Thank you. Our next question comes from the line of Andrea Teixeira with JP Morgan. Please proceed with your questions. Andrea Teixeira: Thank you, operator and good morning, everyone. So, with your comments just now on the cadence of the quarter and into the fourth quarter, I wonder why you haven't raised guidance for [the end of fourth quarter] (ph) in terms of top line? And the second part of your question, looking ahead into the strength, how much do you expect that the sharp resets on the back of the strength will come, will structure for that type of 7% to 9% algorithm? Thank you. Bill Newlands: Well, let's start with the second question first. We were quite pleased with the more limited changes that occurred on the shelf set in the back half of last calendar year. But we're expecting significant gains greater than our growth profile here as we get to the spring resets. You would notice that we fully expect that we're going to finish our year in a very strong performance. You will note that we raised the bottom of our guidance, as Garth noted, and I think I noted in my remarks as well. So we actually have raised our expectations around the income side. And of course that translates through into better cash and various other things as Garth noted. So I think you should take away what I hopefully we were trying to portray, which is our business continues to deliver exactly what we've told you what we would deliver on the beer side, 7% to 9% top line growth and strong bottom operating growth to match. And certainly I think our depletion rate coming out of Q3 reflects that strength. Operator: Thank you. Our next question comes from the line of Rob Ottenstein with Evercore. Please proceed with your question. Rob Ottenstein: Great. Thank you. Two questions. First, so wondering if you could talk a little bit about pricing. I know that you're talking about 1% to 2%. It was 1% here. So kind of two parts to this. One, what is the kind of the general environment for pricing in the beer industry now, the sense that you get? And second, I know that you do kind of a sporadic pricing, so it's -- a lot of the country is zero and then certain parts is maybe 4% or 5% percent and so then it averages out 1% to 2%. Can you talk a little bit about kind of the timing of your price increases? My understanding that your major competitors are pricing at the end of January and the beginning of February. So how does your pricing fit into that? So that's question number one. And then question number two is kind of hearing a little bit, reading about an innovation, Corona Sunbrew, I think Sunbrew's Citrus that's off to a good start. I was wondering if you could talk a little bit more about that. Thank you. Bill Newlands: Sure. Obviously, I'm not going to comment on competitor pricing, but what I would say, Robert, is we said early on, and in fact, some of you probably questioned Garth and I on occasion about it, that we believe that 1% to 2% was the right approach. We've done that historically over the long run. We were a little bit higher than that during the really high inflationary timeframe around COVID which we fully acknowledged and recognized. But I go back to what we've always said, which is, we really want to keep our consumer. It's a whole lot more expensive if you chase them off and have to go reacquire a consumer than it is to never lose them in the first place. And the 1% to 2% algorithm has proven very solid for us over the long term and it's one that we're going to continue. I think certainly you see in other categories, people being careful about pricing. And I think that reflects just an understanding of where the consumer may or may not be in various categories. As it relates to innovation, Sunbrew is coming. We plan to talk mainly about that at our introduction for that, which will occur at the beginning of March. So I'm not going to spill all the beans on it, but we're particularly excited about that. We think it's going to be, again, another very interesting new product launch for our company on the heels of very successful Oro launch and very successful Aguas Frescas launch that has occurred in Modelo, which, as you know, is also expanding here in the coming years. So please stay tuned on that one. But I think we're very optimistic that that provides some great opportunity in the Corona franchise. Operator: Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question. Lauren Lieberman: Great. Thanks. Good morning. I know we've covered a lot of ground, but I was hoping you could just touch on the improved cash flow outlook for the year. It was a pretty material change and exciting. So I'm just wondering if you could talk a little bit about the key drivers on that uptick in outlook. Thanks. Garth Hankinson: Yeah, thanks, Lauren. So there’s obviously a few drivers of the change in cash flow. And obviously I think that seeing the increase in cash flow just goes to further evidence the very disciplined approach we take to managing the cash of the company. Obviously, some of the drivers there will include things like the increase in beer margin, or I should say beer operating income that Bill referenced in his remarks. There, obviously will be some favorability in the taxes that I referenced in my remarks as well as some other favorability on things like tax rates there -- taxes and things of that nature. But those are the primary drivers. Operator: Thank you. Our next question comes from the line of Filippo Falorni with Citi. Please proceed with your question. Filippo Falorni: Hey, good morning guys and Happy New Year. I want to go back to the on-premise channel for the Beer business. I think Garth mentioned we grew about 1% in the quarter. I was wondering if there's any more to recover from the keg issue that you guys had. And then if you think about next fiscal year, we talked a lot about the opportunity to gain share in off-premise, but can you comment on your ability to gain tap handles and gain more distribution in the on-premise channel as well? Thank you. Bill Newlands: Yeah, you bet. As we said, we had some temporary impact around kegs, which was largely in Q2 of this year. But I think it is important to point out that last year, both Modelo Especial and Pacifico were the number one and number two share gainers in draft despite some of those temporary issues. Remains a great opportunity for us when you think about it. I mean, let's use an example. Modelo Especial is number five on draft, but is the number one beer by dollars in this country. But it's certainly -- it’s not number one in the on-premise at this point. Again, a great opportunity. So interestingly, Corona Extra is the number one packaged beer on premise but again still having opportunity in the draft side. So we continue to think the draft is going to be an opportunity for us as one of the growth drivers for us going forward. And, Pacifico is a great example, even though it was the number two gainer, when you see just the real acceleration you have in that brand, I think there remains opportunities for both Modelo Especial and Pacifico in particular in the on-premise. And I certainly would hope to see both of those brands maintaining their number one share gainer status as we get into this calendar year. Operator: Thank you. Our next question comes from the line of Gerald Pascarelli with Wedbush. Please proceed with your question. Gerald Pascarelli: Great. Thanks very much for the question. Just had a question on your measured versus non-measured channels within beer. So if we look at Nielsen, your price mix is moderated at retail. It looks to be currently running right in line with the midpoint of your 1% to 2% target. So if we compare this to non-measured channels, just curious if you've seen any near-term moderation in pricing. And if not, would you maybe expect trends to become a little more aligned as we look out over the near term? Thank you. Bill Newlands: I think by and large the answer to your question is yes, that those are usually reflective. We don't see a lot of variation amongst channels on that particular thing. Although, you do have some very big markets that are not generally covered by some of those tracked channels, New York being an interesting one. So you do see some variation from time to time, but we don't expect that to be significant moving forward about what the tracked versus what the non-tracked channels look like. Garth Hankinson: And the moderation that you referenced is really just attributable to the lapping of the incremental pricing that we took control of last year. Bill Newlands: Absolutely. Operator: Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question. Peter Grom: Thanks, operator, and good morning, everyone. Hope you're doing well. So, Garth, I may have missed this, but is the expectation still for beer depletions and shipments to be roughly equal for the year? And then I think it was mentioned that shipments in the fourth quarter would be around 20% to 21% of full year shipments. Is that quarterly mix similar for depletions as well? Just, we've seen a lot of changes in quarterly mix over the past few years that have resulted in differences in growth rates between depletions and shipments. So just trying to understand how we should think about it specifically for the fourth quarter. Thanks. Garth Hankinson: Yeah, so shipments and depletions, yes, those should be largely in line with one another for a full year. That's consistent with how we operate the business every year. And from a Q4 timing as it relates to shipments and depletions, yes, both of those are in that 20% to 21% range that Bill referenced earlier. Operator: Thank you. Our next question comes from the line of Andrew Strelzik with BMO. Please proceed with your question. Andrew Strelzik: Great. Thanks for taking the question. Mine's about the competitive and promotional environment in beer. You've talked about your expectations on shelf space gains in the spring, the wider spread between light and premium beer and even some of the pricing dynamics in wine. So just curious, then what you're seeing across the competitive set now, how you're expecting that to evolve as the year progresses next year and maybe any plans or programs or levers should the environment intensify? Thanks. Bill Newlands: Certainly. We expect the promotional environment to be fairly consistent with what it usually is. We don't think there's going to be any radical changes around that topic. I think a lot of it goes back to what we've often said, which is the velocities that we have on our brands are superb. And obviously at the end of the day, the retail environment is very interested in having brands focused on those that deliver outstanding velocities and sales per point of distribution. We shared at our Investor Day that our sales per point of distribution is radically better than the competition, And I think that's going to continue to serve us well, especially when you consider the strong brand loyalty that we have with consumers. As we've also said on numerous occasions, our judicious 1% to 2% pricing actions, we don't pull back on our pricing in the marketplace, which I think is important also. So when we make those commitments to 1% to 2%, that's what we deliver. Operator: Thank you. Our next question comes from the line of Bill Kirk with Roth. Please proceed with your question. Bill Kirk: Hey, just one for me, maybe for Garth. I heard the comment about $17 million higher in packaging and material costs for beer. I think that's the lowest year-over-year increase in some time. So is that the low level of inflation you'd be expecting there going forward or is deflation on those items even possible in calendar 2024? And I guess separately it'll probably be in the 10-Q later, but was the transportation cost line for beer, was that deflationary year-over-year in the period? Garth Hankinson: Yeah, so as we said all year long, we would start to see benefits from easing inflation as we move through the year. And obviously we saw that in Q3. Going forward, you asked the question around whether this is at a low point or inflationary in nature. What I would say on that is we laid out a pretty good detail at our Investor Day around what the drivers are that we're expecting over the medium term that are going to result in us getting back in our 39% to 40% percent operating margins. And that includes low single-digit inflation net of our cost savings initiatives. And obviously there's some other offsets that can sound like depreciation, but those really are the drivers moving forward. And then logistics was a bit favorable in Q3 as well. Operator: Thank you. Our final question will come from the line of Bill Chappell with Truist Securities. Please proceed with your question. Bill Chappell: Hey, thanks for taking my question. Hey, just one follow-up on the acceleration of the beer in November and into December. I think I'm right in saying a year ago you had started to see a slowdown due to weather in California and the price increases had just taken, there was some elasticity. So was there more than I guess more favorable comps that you saw that drove the acceleration or is that a key part of it or were the comps maybe not as affected by weather and price increases last year as we had assumed? Bill Newlands: Well, as you often know, lots of things go into why you see acceleration. I think you've pointed out some. I think weather in California was better than it was in prior year. You saw Thanksgiving being slightly earlier than it was in prior year. I think all those things are true. What I would emphasize, though, is that the takeout around our business, around Thanksgiving, was particularly strong. And our share gains that occurred during that period were as good as we saw during the entire year, which again, just speaks to the strength of the brand. There's gives and takes all the way along in the year, as you know, from various factors that occur. But when you see that kind of share acceleration that we've been seeing in the sort of the 2 point range in the overall category and 3 point range in the high end, that just speaks to the continuing strength of our Beer business, irrespective of the potential gives and takes that occur naturally over the course of the year. Operator: Thank you. We have reached the end of our question-and-answer session. I'd now like to turn the floor back over to Bill Newlands for closing remarks. Bill Newlands: Thanks very much, and thank you all for joining today's call. Again, we're very pleased that our Beer business delivered strong performance in Q3 and is on track to achieve the higher end of our initial net sales and operating income guidance for the fiscal year. Our beer portfolio continues to deliver industry-leading performance, and we see a long runway of opportunities to continue to drive strong growth. In our Wine & Spirits business, we're fully committed to realizing net sales growth and improving our operating margins in line with our medium-term outlook for that business as we leverage its reshaped, higher-end leaning portfolio and enhanced DTC and international footprint. And from a capital allocation perspective, we continue to consistently execute against our balanced and disciplined priorities, which are maintaining our investment grade balance sheet, consistently returning cash to our shareholders through our dividend, and executing opportunistic share repurchases beyond those needed to cover dilutions, while advancing our organic investments to support additional production capacity for our Beer business and deploying excess cash to smaller acquisitions that fill portfolio gaps, but with a thoughtful and prudent approach. Altogether, we remain confident in our outlook for the full year and continue to expect our enterprise comparable EPS guidance for fiscal ’24, excluding Canopy, to remain within our previously stated range of $12.00 to $12.20. And over the medium term, we continue to expect low double-digit EPS growth as we outlined in our Investor Day. So, thanks again, everyone, for joining the call, and I wish you all a safe, happy, and prosperous new year. Thank you again for joining. Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.

Operator: Greetings. Welcome to the Constellation Brands Fiscal Year 2024 Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Joe Suarez, Vice President of Investor Relations. Thank you. You may begin. Joe Suarez: Thank you, Darryl. Good morning all, and welcome to Constellation Brands Q2 fiscal '24 conference call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements made on this call. Following the call, we'll also be making available in the Investors section of our company's website, a series of slides, which highlight the prepared remarks shared by Bill and Garth in today's call. Before turning the call over to Bill, in line with prior quarters, I would like to ask that we limit everyone to one question per person, which will help us to end our call on time. Thanks in advance, and now here's Bill. Bill Newlands: Thank you, Joe, and good morning, everyone. Welcome to our Q2 fiscal '24 call. In terms of key headlines for the second quarter, I'm pleased to report that our team once again delivered solid overall performance. First of all, our beer business led to charge as the number one share gainer with accelerating shares across the key summer holiday. We continue to invest in growth for this business as our team looks to seize opportunities to gain incremental awareness, shelf space, in household penetration for our brands in the back half and beyond. Secondly, our Wine and Spirits Business continues to progress along its journey to realize the full benefits of its transformation. Prioritized investments in our largest Wine and Spirits higher-end brands are yielding outperformance in their respective categories, while partially offsetting and helping to reduce headwinds from our mainstream brands as they continue to shift the mix profile of our portfolio. And third, our continued discipline around capital allocation priorities contributed to a strong overall performance in the quarter and sets the stage for fiscal '24, being another solid year of profitable growth and shareholder returns. That said, let me provide a little more color around our key performance drivers in the quarter. As noted, our beer team once again delivered remarkable results. Not only did we remain the top share gainer over the entire critical summer season, we also extended our leading position from Cinco de Mayo to become the number one share gainer in tracked channels during the 4th of July holiday, and although, it falls slightly after our second quarter-end. I'm also pleased to report that we further accelerated our share gains during Labor Day. Modelo Especial remained the key driver of our strong performance, achieving double-digit volume growth in tracked channels and an 8.6% increase in depletions, ultimately strengthening its position as the top brand across the entire U.S. beer market and dollar sales fiscal year-to-date. The broader Modelo brand family also delivered phenomenal results, with Cheladas achieving 50% volume growth in tracked channels and an increase in depletions of over 40%, while Oro continues to build on a solid launch, increasing its share gains in the overall beer category and performing in line with our plans for the fiscal year. Beyond Modelo, our Corona Extra and Pacifico core beer brands also continued to perform strongly. Corona Extra delivered solid low single-digit growth in depletions and tracked channel volumes and was the number six share gainer in the category, while Pacifico achieved 15% depletion growth tracked channel volume growth of approximately 27% and was the number 11 top share gainer in tracked channels. Our beer brands continue to resonate strongly with the consumer, driving demand for our brands in the second quarter, which supported double-digit net sales and operating income growth in our beer business. This gives us confidence to shift our fiscal ‘24 net sales and operating income guidance for the beer business to the higher end of our initial ranges that is 8% to 9% and 6% to 7% growth, respectively. That said, it is important to remember that for our beer business, we indicated that only 45% of total volume for the fiscal year will be shipped in the second half, which aligns with the regular seasonality of beer demand in the U.S. and the timing of our brewery maintenance activities. Beyond fiscal ‘24, we continue to see significant opportunities to maintain the growth momentum of our beer business, particularly due to the resilience of key secular trends in the consumer landscape like ongoing consumer-led premiumization across beverage alcohol and the continued outsized growth of the Hispanic population in the U.S. as well as the relentless focus of our beer business on closing the distribution and awareness gaps that still exist across our brands and on developing and scaling new and exciting products aligned with consumer-led trends. We look forward to sharing more details on this compelling outlook at our upcoming Investor Day on November 2. Moving on to Wine and Spirits. Our Wine and Spirits business continues to make headway on its vision to become a bold and innovative higher-end market leader. In the second quarter, our largest premium wine brands, Meiomi and Kim Crawford outperformed their corresponding category segments in U.S. tracked channels. They both increased their respective share in the overall line category. Our largest Fine Wine & Craft Spirits brands, the Prisoner Wine Company and our Mi Campo tequila brand also outperformed their corresponding luxury wine and higher-end spirits category segments. Notably, all of the individual brands just referenced also delivered solid depletion growth rates in the second quarter. Our Wine and Spirits business also continues to advance the renovation of its mainstream brands to address the headwinds to corresponding category segments at faced over several recent quarters. While there is certainly more work to be done here, in U.S. tracked channels, the year-over-year dollar sales decline for Woodbridge improved relative to the first quarter and SVEDKA's overall share remained relatively stable when compared to the first quarter. All of that said, our Wine and Spirits business continued to face lower demand primarily for our mainstream brands, reflecting continued consumer-led premiumization trends noted in prior occasions, which in turn affected overall performance in the second quarter. Nevertheless, we are reiterating guidance for the full year and continue to expect fiscal '24 organic net sales to remain relatively stable and operating income growth of 2% to 4%. As we shared when we provided our outlook for fiscal '24, we see the year as a tale of two halves for the wine and spirits business, with 55% of planned volume is being delivered in the second half and operating performance projected to accelerate over the rest of the year due to other key factors. We expect to benefit from the more proactive quarterly shipment and depletion rebalancing actions we have undertaken this year versus our single downward shipment adjustment in Q4 of last year. We also anticipate an uplift in our direct-to-consumer channels and improved mix from incremental ASPIRA shipments in line with seasonality, as well as benefits from recent price increases. Ultimately, we also expect to see operating margins meaningfully accelerate due to the improved sales trends just described and the resulting positive operating leverage. Before I conclude, it would be remiss not to highlight our consistent execution against our capital allocation priorities. We continue to make progress towards our reduced net leverage ratio of approximately 3 times with a 400 basis point reduction since the increase resulting from the financing of our Class B common stock reclassification last November. Importantly, our proactive management of the incremental debt from the reclassification now puts us on track to deliver lower interest expense than initially anticipated for fiscal ‘24. And in turn, we now anticipate higher reported and comparable earnings per share, excluding Canopy, in the ranges of $9.60 to $9.80 and $12.00 to $12.20, respectively, for the full year. In terms of cash returns to our shareholders, our dividend payout ratio for the second quarter remained aligned with our 30% target. While we did not conduct any additional share repurchases in Q2, we have executed $35 million year-to-date in line with our goal to at least offset dilution. Lastly, our brewery expansions are progressing as planned, including Veracruz, and we continue to develop and bring these online with the flexibility enabled by our modular approach. Before I conclude, I also want to again take an opportunity during our second quarter call to highlight the upcoming release of our annual ESG Impact Report in a few weeks. This report seeks to provide a comprehensive review of our strategy, initiatives, targets and performance to address pressing environmental and societal needs that are important to our business, consumers, communities, employees and broader stakeholders. In particular, as noted in our last two calls, we have already surpassed our target of restoring 1.1 billion gallons of withdrawals from local watersheds and are looking forward to showcasing the initiatives in our beer business that drove most of this achievement and to share more details on our new target in our upcoming ESG impact report. I invite all of you to spend some time reviewing this report when it is released, which will be available through our company website. In closing, I'd like to leave you with four main takeaways from this quarter. First, our beer business continues to outperform the industry and the acceleration of its performance since the beginning of the year has given us confidence to shift our outlook for fiscal '24 to the higher end of our initial net sales and operating income growth expectations. And just as critical, we remain equally confident about the long-term runway for our higher-end brand portfolio. Number two, the benefits of our Wine and Spirits strategy continue to take hold, we expect the net sales growth and operating income growth of that business to ramp up through the remainder of fiscal '24. And as we look to the coming years, we anticipate our Wine and Spirits business to further gain momentum and achieve stronger results. Number three, we are persistently delivering on our capital allocation priorities, maintaining discipline and balance to yield value and returns, and we remain committed to building on the consistent track record we've established with these priorities over the past few years. And finally, number four, we are excited to be sharing more of these important topics with you at our upcoming Investor Day in four weeks' time. And with that, I'd now like to turn the call over to Garth, who will review our financial results for Q2 in more detail. Garth? Garth Hankinson: Thank you, Bill, and good morning, everyone. Our second quarter results reflect the ongoing disciplined execution of our strategic initiatives and our relentless focus on continuing to deliver growth while enhancing our performance. As Bill noted, we achieved yet another strong quarter with double-digit net sales and operating income growth in our beer business while our Wine and Spirits business delivered solid performance across its largest premium, fine wine and craft spirits brands, which partially offset the category headwinds affecting our mainstream brands. We also continue to generate strong cash flow results and execute against our consistent and balanced capital allocation priorities. Now let's review our Q2 fiscal '24 results in more detail where I will mainly focus on comparable basis financial results. To begin, our beer business increased net sales by 12%, representing an uplift of $253 million. This was driven primarily by volume growth of 8.7% as demand for our Beer brands accelerated through the first half of the fiscal year. This growth also benefited from favorable pricing, which contributed $59 million of the overall net sales increase. As a reminder, we continue to expect pricing to account for 1% to 2% of our net sales increase this fiscal year from the combination of the wraparound impact from the significant pricing actions taken in Q3 of fiscal '23 and targeted pricing actions we are taking in fiscal 2024. For the second quarter of fiscal '24, beer shipment volume and depletions were generally in line with one another, and I'm pleased to report that our inventories are at healthy levels to support the ongoing growth of our brands. Beer depletion growth for the quarter came in at 7.9%, reflecting a successful summer selling season, driven by ongoing consumer demand across our industry-leading beer portfolio as evidenced by our share gain acceleration; execution of our distribution and marketing strategies, including extending our category leadership across the key summer season and continued positive results from our Shopper-First Shelf initiative; and lastly, the accelerated growth in share gains across our core and emerging markets. Before moving to on-premise performance, I'd like to take a moment to explain a notable recent development in off-premise channel observation. As many of you are aware, Circana tracked channel volume growth has historically been above depletion growth by a low single-digit variance. However, more recently, that variance has expanded to the mid-single-digit range as independent retailers not captured by Circana data have lagged in reversing the additional pricing they took beyond our October fiscal '23 pricing actions. We believe this has led certain consumers to ship from these independent retailers to chain retailers offering more competitive consumer pricing. While the shift in these variances has no impact on the overall demand of our brands we continue to monitor channel performance and plan to provide further updates or insights needed to reconcile tracked channel data with our overall performance as warrant. As a reminder, Circana captures approximately 50% of our total beer volumes. Shifting back to the on-premise channel, depletions were essentially flat year-over-year and accounted for approximately 10.3% of our total beer volume. Please note that while we did have some minor disruptions in our supply of kegs during the second quarter, this Q1 to Q2 step down largely reflects a normal seasonal pattern that we have seen in previous years. Importantly, while there is some disruption in the near-term, we are currently producing and shipping tags and fully expect to offset the impact of the disruptions as swiftly as possible. Looking forward to the second half of the year, as Bill noted, approximately 45% of our volumes will ship in the second half of the year, as a result of it being our lower volume period. In addition, our Q3 shipment volumes are also normally more subdued due to routine maintenance activities. Lastly, from a pricing perspective, we will start to overlap the uplift we saw from significant incremental pricing actions taken in October of fiscal '23. Nonetheless, as we have previously stated, we fully expect our full year shipments and depletions to be largely in line, both on an absolute and a year-over-year growth basis by fiscal year-end. In regards to selling days, they were flat year-over-year for the quarter, please note, for the remainder of fiscal '24, Q3 sales days will be flat year-over-year, and there will be one more selling day in Q4. Now let me review beer margins. For Q2, operating margin decreased by 60 basis points to 39.9%. This decrease was driven mostly by the ongoing inflationary pressures in our COGS as we faced an overall cost increase of approximately 17%. The largest drivers of these cost increases came from packaging and raw materials, incremental costs related to a voluntary product recall of select kegs for quality assurance. And higher depreciation that amounted to $12 million or a 24% increase. To mitigate the inflationary and depreciation pressures, we continue to work across the business on cost efficiency and operational productivity programs that yielded meaningful and sustainable benefits. Building on the $30 million of net savings delivered by these initiatives in the first quarter, we realized an approximately $20 million in incremental net savings, in the second quarter. In addition to our cost-saving initiatives, we incurred margin benefits from the following. A $4 million or 2% decrease in marketing expense, primarily driven by the divestiture of our craft beer business. Marketing as a percent of sales came in at 7.1% for the quarter and a $3 million or 3% decrease in SG&A expense, which was primarily the result of favorable foreign currency impacts. Regarding Q2, our marketing spend as a percent of net sales was outside of our previously stated algorithm of 9% to 10%. As usual, part of this relatively lower percentage in Q2 and is a reflection of the strong volume and therefore, net sales performance of the business due to category seasonality. However, the impact of the reduction in marketing due to the previously noted exit from craft beer has further lowered that percentage. For the full year, we now expect to be closer to the lower end of our stated range of 9% to 10% of net sales due to the craft beer divestitures and our continued focus on ensuring our large marketing investments are prioritized to the highest return areas in our portfolio. As a result of the acceleration in the growth of Beer Business since the beginning of the year, we are shifting our expectations for fiscal '24 to the higher end of our initial ranges, resulting in an 8% to 9% expected increase in net sales growth and a 6% to 7% and expected increase in operating income growth. Now, moving on to our Wine and Spirits Business. In line with the reshaping of our Wine and Spirits Business to a higher-end portfolio of offerings, we continue to benefit from the solid performance of our largest premium wine, fine wine, and craft spirits brands. Meiomi, Kim Crawford, The Prisoner Wine Company, and Mi Campo, which as Bill noted, outperformed the corresponding categories in tracked channels and delivered solid depletion growth. While we are pleased with the results with these leading higher-end brands, our overall Wine and Spirits organic net sales were down 11%, driven primarily by the category headwinds we continue to face from the performance of our volumetrically larger mainstream brands, Woodbridge and SVEDKA. Our plans to renovate Woodbridge and SVEDKA, are underway, and our Wine and Spirits leadership team is looking forward to sharing updates on this progress at our upcoming Investor Day. Shipments on an organic basis decreased by 15% and depletions decreased by approximately 8%. As a reminder, approximately 55% of the Wine and Spirits sales are anticipated to occur in the second half of the year, where we also expect to see consumer-led premiumization mixed shift towards the higher end to continue, supporting what we believe will be a notable acceleration in the growth trajectory of the business for the remainder of the year. Wine and Spirits operating income, excluding the gross profit less marketing of the brands that are no longer part of the business following their divestiture, was down 12% and operating margin decreased 10 basis points to 18.2%, also reflecting the same exclusion. The margin decline was primarily driven by the volume declines of our mainstream brands and partially offset by lower material costs, primarily from sustainable packaging projects, supply chain savings, and lower marketing spend as we continue to focus on higher return areas of our portfolio. As we look forward, we continue to expect the Wine and Spirits Business to significantly improve its net sales growth trajectory for the remainder of the fiscal year through a combination of increased contributions from our higher-end portfolio, as well as incremental pricing actions. We expect this acceleration in net sales growth, combined with our continued cost reductions and marketing efficiency initiatives to also support our operating income growth targets. As a result, we remain confident in the outlook for wine and spirits for the year and our guidance for that business for fiscal '24 remains unchanged. Now let's proceed with the rest of the P&L. Corporate expense was approximately $67 million, an overall reduction of 19% when compared to the prior year, primarily driven by reduced spend in the second wave of our digital business acceleration program, lower headcount-related costs and lower compensation and benefits post our reclassification transaction. Interest expense for the quarter was approximately $111 million, a 17% increase from the prior year, driven by higher weighted average interest rates on the portion of our debt with adjustable rates, which is approximately 5% of our debt obligations and higher average borrowings due to the financing of the share reclassification. However, we now expect interest expense for the full year to be approximately $460 million roughly $40 million lower than our prior guidance due to refinancing actions for some of our higher interest debt and faster-than-expected deleveraging throughout the year. We ended the quarter with a net leverage ratio of approximately 3.2 times excluding Canopy equity earnings and expect to continue to make progress towards our three times ratio target over the coming quarters. Our comparable effective tax rate, excluding Canopy equity and earnings for the quarter was 17.8% versus 20.3% last year. For fiscal '24, we continue to expect the comparable effective tax rate, excluding Canopy equity and earnings to be approximately 19%. Moving to free cash flow, which we define as net cash provided by operating activities less CapEx. For the second quarter year-to-date of fiscal '24, we generated free cash flow of $1 billion, a 15% decrease versus prior year, driven by a 34% increase in CapEx investments attributable to the capacity expansions at our Nava and Obregon facilities and the construction of our new brewery located in Veracruz. As of Q2, we have fully commissioned our latest additional brewing capacity project at our Obregon facility and now have approximately 47 million hectoliters of capacity across our two breweries. Looking ahead, we remain on track to bring our ABA facility online at Nava towards the end of this fiscal year. And the development of our additional expansion at Obregon and our third brewery site at Veracruz are advancing as planned. We continue to expect fiscal '24 free cash flow to be in the range of $1.2 billion to $1.3 billion, reflective of operating cash flow between $2.4 billion and $2.6 billion and CapEx of $1.2 billion to $1.3 billion. Our comparable EPS for the quarter, excluding Canopy equity and earnings, was $3.80 as a result of the continued profitable and disciplined growth we have seen this year, we are raising fiscal '24 reported EPS guidance to between $9.60 and $9.80 and comparable EPS guidance, excluding Canopy equity and earnings to be between $12 and $12.20. And finally, our announced dividend of $0.89 a share will result in approximately $163 million returned to shareholders for the quarter. In closing, I'd like to say that our entire team continues to execute and deliver against our strategic priorities. We demonstrated solid execution in the first half of fiscal '24 and as we enter the back half of the year, we plan to remain disciplined as we seek to drive long-term profitable growth and enhanced shareholder value. Our management team is excited to meet with many of you this coming November as we lay out our medium and long-term ambitions and vision for Constellation Brands at our Investor Day. With that, Bill and I are happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Vivien Azer with Cowen & Company. Please proceed with your question. Vivien Azer: Hi, thank you. Good morning. Bill Newlands: You bet. Vivien Azer: So, obviously, very strong one half results in the year. I've been getting a lot of questions on why the positive revision to guidance wasn't a little bit more robust. And, obviously, Bill, you laid out some of the factors to contemplate from a shipment perspective as well as from the lapping of pricing that Garth called out as well. But is there anything incremental that you can offer in terms of your outlook for the category in the back half that might have informed a little bit more caution as well? Thanks. Bill Newlands: No. We remain very positive about the back half of the year. The critical things that are important relative to our back half is normal seasonality. We only do 45% in the back half, we do our maintenance in Q3, which always limits Q3 somewhat. And we're going against pricing from last year that won't largely be repeated combined with the normal sales buildup ahead of price increases that occurred again in Q3 last year. But let's just keep in mind, when you look at the takeout data you see in tracked channels, our four-week numbers are very consistent with the 52-week numbers. This is an ongoing growth story that we have a lot of confidence in, which is why we raised our expectations for the year in beer. We expect to have a very strong second half. Operator: Thank you. Our next question comes from the line of Andrea Teixeira with JPMorgan. Please proceed with your question. Andrea Teixeira: Thank you. Good morning. I was hoping to see if you can comment a bit on the shelf resets in the category are large, how you're seeing consumers, I understand the CAG situation and the on-premise consumption. Just hearing, obviously, the shift in market share and you were a beneficiary and you have been doing a lot of work for a long, long time in the shelf resets. And so if you can comment on that, how you're looking at as you go into the spring resets in the large boxes as well as what's happening in the on-premise? Thank you. Bill Newlands: Certainly. We certainly expect to see a strong reset period. You know, there's some limited resets that occur here in the fall. Most of those occur in the spring. Our confidence around that drives primarily from the sheer velocities that we have within our key brands. No, our portfolio is second to none in terms of delivering against velocities. And those have been consistent year-on-year, which gives us a lot of confidence in our ability to continue to see shelf set gains. Retailers are very smart about this, and they recognize where the growth and velocity is coming from and that will work strongly to our advantage as those resets occur. Operator: Thank you. Our next question comes from the line of Nik Modi with RBC Capital Markets. Please proceed with your question. Nik Modi: Yes, thank you. Good morning, everyone. Bill Newlands: Hi, Nik. Nik Modi: Bill, I was hoping you can -- hey, how are you? I was hoping you can just comment on systems and supply chain volume. And I ask this question because a lot of your growth is coming in areas that were not really driving your growth, let's call it, 5 to 10 years ago. So getting the right volume in the right place at the right time requires some adjustment and probably some systems overhaul. So I just -- I was wondering if A, if that is a valid point to be making; and B, if it is, what you're doing internally to make sure that you can actually have the most optimized supply chain? Bill Newlands: Certainly. A couple of things stand out, Nik, around this. As you know, a few years ago, we literally had no redundancy in the system. We now do, and that certainly provides much greater flexibility in terms of our operations footprint to do a number of things. One is to make sure we're able to keep up with our increasing demand that we consistently see on our business and in a scenario where something is accelerating at a greater pace than what we had anticipated. We can react to that. I think, A, that's very strong. Secondly, as you know, we made some significant investments in our digital business efforts and those are really paying dividends in terms of our supply chain capability as well. That has significantly refined our ability to make sure we have the right supply chain capabilities all the way through the supply chain. So, I'd say both of those things have been critically important. In fact, and I know you'll be there -- you'll get a chance to hear about this in some depth during our Investor Meeting on November 2nd. We think this is a critical factor that's been important to our continuing ability to maintain and meet the significant increase in demand that we've seen and we'll go into that in a fair amount of detail on November 2nd. Operator: Thank you. Our next question comes from the line of Dara Mohsenian with Morgan Stanley. Please proceed with your question. Dara Mohsenian: Hi, good morning, guys. Bill Newlands: Hi, Dara. Dara Mohsenian: So just two quick clarity questions. The mid-single-digit gap versus Circana data that you saw in this quarter in terms of depletions, do you think that lingers? Might that close back towards the low single-digit gap going forward? Just conceptually, how do you think about that? And in your answer to Andrea's question around shelf space, is there more opportunity this year than a typical year, just given ABI's business is obviously falling off unexpectedly after the spring reset. So, do you think about the shelf space opportunity as greater than typical, just given those dynamics? And there may be greater shifts, even if your business doesn't compete as much directly head-to-head versus them? Bill Newlands: Yes. Sure, Dara. On the first point, the question of whether or not the sort of mid-single-digit continues, I think, remains to be seen. Certainly, as Garth noted at Barclays, and we said during our prepared remarks, it's more than it has usually been so whether or not it refers to the norm of what we usually see, which is sort of lower single-digit remains to be seen, and obviously, one that we watch carefully. Relative to the shelf sets, yes, we think this is going to be a great opportunity for us for all the reasons I answered earlier, which is our velocities are second to none. And we fully expect that we're going to be able to expand our presence. That also impacts some of our new product development. If you think about Oro, I mean, Oro is off to an excellent start much in line with what our expectations were. And that also gives us a chance to expand our shelf presence because we expect that, that particular brand using that example is going to get more shelf space. The last thing I would say, and I got to call out Chelada’s, because Chelada's has just been absolutely on fire. And our additional sizes and variety pack in those -- in that particular category, again, gives us chance outside of the core beer set to also gain more shelf space. So we need to think about this very broadly because we expect to gain both in what I would call the core beer shelf as well as the ancillary beer shelf as well with things like Chelada. Operator: Thank you. Our next question comes from the line of Gerald Pascarelli with Wedbush Securities. Please proceed with your question. Gerald Pascarelli: Great. Thanks very much. It's a macro-related question. Bill, one of the questions we get a lot is on student loan repayments. They're going to resume this month after a three-year pause. So just how are you thinking about the impact from that, maybe the potential for down trading, just obviously given some of the premium price points on your beer products? Any color there would be great. Thank you. Bill Newlands: Yes. That, again, is one of those things that I think remains to be seen. One of the important things that we see with our brands is the consumer loyalty that is attached to those brands. Taking Modelo as an example, we over-index with the Hispanic community and the Hispanic community has tremendous brand loyalty to Modelo. Also with Corona. Corona is a much broader-based demographic, but that we continue to say it's the most loved beer because it is. I think that's critically important. People make choices all the time about where they're going to spend their discretionary income. And brand strength is critically important about how people make those judgments. So specifically to your question, it remains to be seen, but we feel very confident in our ability to see our brands continue to gain traction simply because there's so much brand loyalty attached to them. Operator: Thank you. Our next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your question. Nadine Sarwat: Hi. Two questions for me, please. Coming back to Modelo Oro. Could you share some -- any updated data points that you have, especially, when it comes to cannibalization? And how would you characterize that incremental consumer? And then just one final question on that voluntary ad product recall. Can you quantify the impact that this has had in the quarter, both on top-line and on the margins? Thank you. Bill Newlands: Sure. As I noted earlier, we only had a couple of SKUs in Oro, but it's off to a really good start. And the cannibalization rates were less than we had anticipated and, frankly, less than they were in the three test markets that we had originally run. So we're very positive about that. One place where we're seeing disproportionate pickup on that particular sub-brand of Oro is in the Hispanic community. We've been very pleased by the takeaway in critical, large Hispanic markets, how Oro has done and as we continue to build that out, you'll see additional SKUs coming next year, which we believe will help to continue to accelerate that brand's growth. And if the cannibalization rates stay where they have been, it's going to be better than we had initially anticipated. Garth, do you want to handle the second one? Garth Hankinson: Yes. And just on the CAG recall, the impact was entirely in the cost of goods as related to shipping and destruction of products as well as the initial cost to produce the product. It's -- it wasn't a material movement for us for the quarter. There'll be a little bit more detail in the 10-Q on that, and you can find it there. Operator: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane: Thanks, operator. Good morning, everyone. Bill Newlands: Good morning. Bryan Spillane: So I guess a little bit of perspective maybe on -- and this may be a little bit of a follow-up from one of the earlier questions, but just we're getting a lot of questions about demand elasticity, consumer tolerance of inflation. So can you just give us a little bit of perspective for both your beer business and also in wine and spirits, just what kind of economizing behavior might you be seeing? Again, is it like buying more in chain convenience versus independents or choices people are making on packaging. Just as you're kind of looking forward, just kind of where we are on economizing behavior and how you might have to adapt or adjust to that? Bill Newlands: Yes. So I think this points out to where our judicious approach to pricing has been spot on. We've said consistently -- in fact, we got questions about that on prior calls at times about why we weren't taking more price. Our view has consistently been 1% to 2% annually. We were a little more than that the last couple of years, but 1% to 2% is the consistent way that we look at it, and we look at it market-by-market, SKU-by-SKU. The rationale for that is quite simple. It's much easier to keep your consumer than to have to go get them again, if you have lost them. I think in this particular instance, as you point out, people are careful. We're seeing less -- more trips, but somewhat less purchasing per trip than we used to see, which simply means people are being a little more careful about what they do, given the inflationary environment that exists. I think the important part for us is the fact that even though there are more trips, they are making more trips to purchase more of our brands, even if they might spend a little less on any particular trip, again, that speaks to what I just replied to on the prior question, which is about our brand loyalty and about the consistent consumer dynamics that really works to our advantage over the long run. So again, I think the critical element to that is our judicious pricing approach over time is one that's going to do us very well when you're in a consumer environment that people are a little bit more concerned or a little bit more nervous about the inflationary environment. And I think that's going to work to our advantage as we go forward. Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your questions. Chris Carey: Hi, everyone. Garth, can you just comment on how inflation is coming in relative to your expectations entering the year, puts and takes. I asked this in the context of your comments around marketing coming in at the low end of the historical range for the full year. And I would just be curious on how you view gross margin delivery in the quarter relative to expectations with any context on the back half of the year? But -- so anyway, high level, just trying to get some context around how costs are running relative to what you were thinking going and maybe you can frame how this delivery is coming in, again, relative to your going expectations? Thanks. Garth Hankinson: Yes. Thanks, Chris. Look, as a reminder, we expect our beer operating margin for this fiscal year to be around 38%. That remains unchanged. And as it relates specifically to Q2, Q2 is historically traditionally our higher -- our highest margin quarter given the volume associated with Q2. And so in the second half of the year, obviously, we're going to continue to face inflationary pressures that we've had all year long. We are seeing some easing in inflation as expected as we've gone through the year. Unfortunately, while we've seen some improvement in inflation, we've also seen a strengthening peso kind of hold up. And so any improvement that we had due to inflation has been really offset by the strength of the peso. And then again, in the second half of the year, because of the historically lower volume that we have in that half, there will be an impact, obviously, to fixed cost absorption as well as COGS and marketing and additionally, incremental depreciation as we brought on over gone partway through the year. And then as Bill noted in his remarks, it scheduled maintenance that we traditionally do in the second half of the year as well as the overlapping and the pricing benefits last year. So all in, I mean, those are sort of the factors that will contribute to the 38% margin for the full year. Operator: Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question. Lauren, are you self-muted? Bill Newlands: Hello, Lauren. Operator: Lauren, unfortunately, we can't hear you. Are you muted? I will move on and Lauren… Bill Newlands: I think come back again. Operator: You got it. Our next question comes from the line of Rob Ottenstein with Evercore. Please proceed with your question. Rob Ottenstein: Great. Thank you very much. I was wondering if you could give us a little bit more detail on your productivity programs, the specific buckets that you've addressed that you're targeting? And is this something that is potentially a multiyear process of system optimization? Thank you. Bill Newlands: Thanks, Robert. Yes, I would say that our cost savings and efficiency initiatives certainly are multiyear in nature. Obviously, we communicated earlier this year in Q1, we had taken $30 million out and then this year, an incremental $20 million for this quarter, I should say, an incremental $20 million. We're always looking at ways to sort of prove productivity create efficiencies in the business, whether that's through supply chain and procurement or operations. Examples of that over time have been things like double stacking rail cars and the use of plastic pallets optimizing the location of inventory, as Bill referenced in response to a question earlier, improved purchasing in terms of raw materials, through better contract management and negotiations, as well as more effective and efficient use of our marketing spend. So it's absolutely something that the organization is focused on a year-on-year basis. And certainly, we will share a lot more detail on our cost savings initiatives for both our beer and our Wine and Spirits businesses at our upcoming Investor Day. Operator: Thank you. Our next question comes from the line of Filippo Falorni with Citi. Please proceed with your question. Filippo Falorni: Hi, good morning, everyone. Bill, you mentioned that the last four-week trends has been very strong and consistent with the last 52 weeks. Can you give a little bit maybe more color on the performance of your business in September. And then at the industry level, one of your competitors, the Investor Day mentioned that September for the industry is particularly sluggish, particularly last couple of weeks as you cycle the shipments ahead of the price increases in the last year. So maybe some color on the timing of shipments into September into Q3 would be helpful. Thank you. Bill Newlands: Sure. When I look at the most recent Circana data for four weeks, our total beer business is up 13.7%, which is very consistent with what the 52 weeks. That's what I was alluding to in my prior comments around that. Certainly, as we also noted, we expected that we would see some element of tightness during the course of the beginning of this quarter that we are in purely because we are lapping the October price increases that occurred last year and some of the prebuild that people do the retailers do ahead of any price increases that existed. All of that's consistent with what we've expected. And we expect, as we've said, the reason we raised the -- our guidance expectation around beer is because we expect to have a very strong back half of the year despite a couple of these headwinds that certainly exist. Operator: Thank you. Our next question comes from the line of Andrew Strelzik with BMO Capital Markets. Please proceed with your question. Andrew Strelzik: Hi, good morning. Thanks for taking the question. My question is on capital allocation and in particular, around buybacks. And I think you noted no buybacks during the quarter but being on track for your target to offset dilution year-to-date. I guess, my question though is what's the appetite for buybacks in excess of that, particularly given the momentum in the business, the strong cash flow generation. How are you thinking about that now versus where you were at the beginning part of the year and moving forward? Thanks. Bill Newlands: Yes. So capital allocation is obviously something that we're going to discuss in greater detail at our upcoming Investor Day. But just broadly speaking, I would say, for this fiscal year, as we noted when we entered this year, we were going to at least buy back the dilution that occurred throughout the year. But this year, we are also prioritizing getting our leverage ratio back to our target of 3.0 versus where it was at an elevated state as a result of the reclassification. That said, we're always looking to be flexible and agile as conditions allow for. So something we continually look at. And just as a reminder, we do have $800 million remaining under our current board authorization. So in the event that we decide we want to be a bit more active, we have the ability to do so. Operator: Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question. Lauren Lieberman: Hi. Can you hear me? Bill Newlands: We do. Garth Hankinson: We can. Bill Newlands: Part two. Lauren Lieberman: Okay, hooray. Okay, cool. Sorry about that, I don't know what happened, but just quickly, I was going to ask about wine industry growth. And just against the backdrop of your comments on Woodbridge/SVEDKA, obviously not wine, and then the higher end brands performance. But just as you think about the path forward, not just second half, but into next year and so on, how do you think about wine industry growth, wine versus beer versus spirits? I'm guessing we'll get into this a bit more the Investor Day, but I was just curious if you could preview a bit your view on kind of that long-term growth in wine? Thanks. Bill Newlands: Yes, certainly, Lauren. It's really the tale of two cities. The lower end piece of the business, what we refer to as mainstream, has been very challenged. It's down mid to high single-digits, which obviously is somewhat challenging for us because we do have significant involvement with that category still even though we have divested a number of brands that played in that category. So that certainly is a very different answer than what I would say to you about the higher end portion of the business, where brands like Naomi and Kim Crawford and High West and Booker and things of that nature are all significantly outperforming our plans and expectations and gaining share. You're right. We'll talk about that at Investor Day. The other thing I keep in mind, unlike beer, which is about 45% in the second half, it's directly the flip when it comes to wine. That's 55% in the second half. And as we do, and a disproportionate amount of our business comes from ASPIRA and which much more relates to vintage releases those all tend to occur in the second half which again weights our business toward the back half the year versus the first half the year. And the other one I would just point out which I think is important to recognize. We made the choice as we said early this year that we were going to balance our ships and depletes all year long, as opposed to doing it once in the fourth quarter which is what we did last year That creates a bit of a challenge in the early part of our fiscal year, but gives us a significant improvement proposition in the back half of the year, as that won't occur as it did last year, creating a disproportionate shipment number in the fourth quarter last year, which won't be the case and we will be going against a much better proposition this year. So all in I think the wine business certainly has seen some challenges, but much like we see in the higher end of the beer business. The higher end portion of the category is much stronger and certainly our business in that sector is performing very nicely against category norms. And you're right we will go into all of that in much more depth during our investor discussion on November 2. Operator: Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Bill Newlands for any closing comments. Bill Newlands: Thank you, and thank you all again for joining our call today. We're very pleased with our performance in the first half of fiscal 2024. As anticipated, our beer business further accelerated during its seasonally strongest period of the year to deliver excellent results. In our Wine and Spirits portfolio, our higher-end brands continued to outperform and track channels, and we're looking forward to an acceleration in the growth of that business over the second half. All told, we remain confident in our outlook for the full year and have tightened the expectations for growth in our beer business at the higher-end of the initial range, while increasing our overall EPS outlook as we drove interest expense lower due to our proactive debt management. In closing, I would like to encourage you to tune in for our upcoming Investor Day on November 2nd, where we will be sharing our latest perspective on the medium-term outlook for our business. You will find further details on how to access this event through our Investor Relations website at ir.cbrands.com. Thank you again for joining us today, and we look forward to seeing most of you, if not all of you, November 2. Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.

Operator: Hello, and welcome to the Constellation Brands Q1 Fiscal Year 2024 Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference call is being recorded. It's now my pleasure to turn the call over to Joe Suarez, Vice President, Investor Relations. Please go ahead, Joe. Joe Suarez: Thank you, Kevin. Good morning, all, and welcome again to Constellation Brands' Q1 fiscal 2024 conference call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements made on this call. Following the call, we'll once again be making available in the Investors section of our company's website, a series of slides with key highlights of the prepared remarks shared by Bill and Garth in today's call. Before turning the call over to Bill, in line with prior quarters, I'd like to ask that we limit everyone to one question per person as noted, which will help us end our call on time. Thanks in advance, and now here's Bill. Bill Newlands: Thanks, Joe, and good morning, everyone. We are off to a strong start in fiscal 2024, with a solid first quarter. Our Beer Business delivered net sales growth of 11%, mainly driven by continued strong volume growth in line with our medium-term algorithm. As anticipated, depletion performance accelerated throughout the quarter, resulting in a 5.5% increase for the period and acceleration that has continued into June, supported by our beer team's unrelenting push to increase distribution for our high-growth, high-velocity brands, continued incremental investments in marketing focused on the highest return opportunities and ongoing strong demand for our high-end Mexican beer brands aligned with consumer-led premiumization trends. Particularly in large markets with significant runway for Modelo Especial, like Texas, Florida, Illinois and North Carolina with the brand posted double-digit dollar sales growth in Circana track channels. And yes, also in California, where our share gains actually accelerated and as expected, demand for our portfolio did ramp up after the unseasonably cold weather in early March. All in, our Beer Business delivered strong growth for the quarter, while consistently advancing all four areas of our strategic initiatives. First, the business continued to propel its powerful core brands that people love. Modelo Especial remained the number one dollar share gainer in the entire beer category, delivered double-digit dollar sales growth in tracked channels, and as most of you likely already are aware, became the number one beer in America in dollar sales during the first quarter. Both Corona Extra and Pacifico also achieved share gains and delivered dollar sales growth of approximately 4% and 26%, respectively. Second, our beer innovations, which are still centered around the flavor and betterment consumer-led trends are off to a great start. Our Modelo Chelada brands remained a top 10 dollar share gainer with further support from our variety pack launched last year, the number four new product in Circana channels and from the launch of new Sandía Picante flavor, the number five new brand. Modelo Oro was also a top 10 share gainer and incrementally has actually been slightly above what we saw in initial test markets. And Corona NA was the number one share gainer in the non-alcoholic beer category in tracked channels. Third, the expansions of our beer brewing capacity continued to advance as planned. Our latest modular addition to Obregon successfully ramped up in Q1 and we are on track with the new ABA facility at Nava for Q4 of this fiscal year. At Veracruz, site development and construction work are underway, and we expect that to build up through this year and next. And fourth, the ESG efforts of our Beer Business further drove progress on our company-wide goals, particularly those on water stewardship. As noted in our last call, we recently surpassed our target of restoring 1.1 billion gallons of withdrawals from local water sheds. The initiatives in our Beer Business drove most of this achievement, and we plan to announce a new water target later this fiscal year. Building on our existing water and emissions targets, we also recently announced two new commitments focused on reducing waste and enhancing our use of circular packaging. In support of that commitment, within our Beer Business, we plan to attain a true zero waste to landfill certification for our breweries in Mexico and replace hi-cone plastic rings with recyclable paperboard for all applicable four and six pack SKUs. Similarly, within our Wine and Spirits Business, we also plan to attain the same certification for our key U.S. operations, as well as reducing our packaging to product weight ratio by 10% and ensure that 80% of the business packaging is returnable, recyclable or renewable. With that, let's turn more fully to our Wine and Spirits Business. As noted previously, over the last few years, the Wine and Spirits Business has strategically shifted its portfolio to a bold, innovative and higher-end product mix that continues to be driven by consumer-led premiumization. In Q1, the higher-end wine portion of the business gained share in the U.S. wine category and outpaced the dollar sales growth of the corresponding segment and tracked channels. Meiomi and Kim Crawford, the portfolio's largest premium wine brands and The Prisoner Wine Company, the largest fine wine brand group were main drivers of this strong performance. The innovation efforts across these brands also continued to deliver excellent results with Meiomi Bright, the brand's lower alcohol, lower calorie offering aligned with consumer-led betterment trend capturing the number one new brand spot in the category. In the main streamline portion of the business, the reinvention of Woodbridge is underway to address the growth headwinds and facing that segment of the category while keeping the brand's core consumers engaged. And while there is certainly more work to be done here, the brand's year-over-year dollar sales decline in U.S. tracked channels improved throughout the quarter. The overall spirits portfolio maintained its share in U.S. tracked channels with notably strong dollar sales performance across its higher-end tequila and RTD products. In particular, Mi Campo tequila and High West ready-to-drink cocktails, both delivered significant double-digit dollar sales growth. Beyond the evolution of the portfolio over the last few years, the Wine and Spirits Business has also been investing in capabilities to accelerate its performance in key growth channels. This omni-channel focus has provided additional pillars of consumer-led growth such as international and direct-to-consumer. The latter of which grew the channel's net sales 13% in Q1. And in fact, the e-commerce and customer loyalty portions of our DT business - DTC business, pardon me, were up over 40% in Q1. From a volume perspective, the Wine and Spirits Business continued to face lower demand primarily for our mainstream brands, reflecting continued consumer-led premiumization trends noted earlier, which in turn affected top line performance. In the higher end line portion of our portfolio, our larger premium and luxury brands faced softer segment demand in April, but we did see solid acceleration in May, and that has continued into June. Meanwhile, in our spirits portfolio, our higher-end craft brands posted very strong depletion growth of 40%. The Wine and Spirits Business also delivered significant operating margin expansion in Q1, adjusted for the contribution after marketing of the divested brands. This further demonstrates the benefits of the strategic refocusing of the portfolio to higher end, higher growth, higher-margin brands and channels. To sum up the shift of the Wine and Spirits Business toward driving growth and margin improvement through its pivot to the higher-end brands and broader channels and markets, remains well on track. All in, we are confident in our outlook for the Wine and Spirits Business in fiscal 2024 as performance is expected to continue to accelerate throughout the course of the year, in line with seasonality and the business' annual plan, particularly as the share of net sales from our Aspira, Fine Wine and Craft Spirits portfolio increases over the coming quarter. In closing, I once more want to highlight that our solid performance for the first quarter of fiscal 2024 was anchored by the consistent execution of the annual plans and strategic initiatives across both businesses. And with that, I would like to turn the call over to Garth, who will review in more detail our financial results for the quarter. Garth Hankinson: Thank you, Bill, and good morning, everyone. As Bill noted, fiscal 2024 is off to a solid start. We steadily executed against our annual plans, remaining both focused and adaptable as the economic and consumer backdrop continue to evolve and we remain on track to deliver against our stated financial performance goals for this fiscal year. As Bill noted, our Beer Business achieved double-digit net sales growth and the higher-end segment of our Wine and Spirits Business outperformed the higher end of the wine category. We also continue to execute and deliver against our capital allocation priorities, and we are reiterating our guidance for the year. Now, let's review our Q1 fiscal 2024 results in more detail where I will mainly focus on comparable basis financial results. Starting with the Beer Business. Net sales increased by $200 million representing an uplift of 11%. This was driven primarily by our volume growth of 7.5% as strong demand continued across our industry-leading portfolio. We also benefited from favorable pricing, which contributed $60 million of the overall net sales increase. Staying on the topic of price for just a moment, the incremental pricing we realized this quarter primarily reflects the wraparound impact from the elevated pricing taken in fiscal 2023 that was above our typical 1% to 2% algorithm. As a reminder, we expect pricing to account for 1% to 2% of our net sales increase this fiscal year, which represents the combined uplift from the wraparound impact and the average of any other additional pricing actions to be taken in fiscal 2024 on a market-by-market, channel-by-channel and SKU-by-SKU basis. Beer depletion growth for the quarter came in at 5.5%, which reflects a slower start but strong finish in the three-month period between March and May as growth significantly accelerated through the quarter, driven by the disciplined execution of our distribution and marketing plans, including during the key Cinco de Mayo and Memorial Day holidays, ongoing consumer led premiumization trends including solid buy rates for high-end beer. And as Bill noted, significant growth in several of our top five markets and beyond as well as improving conditions in California. These results give us confidence as we head into the peak summer selling season. Our largest brands, Modelo Especial and Corona Extra delivered mid-single-digit and low single-digit depletion growth, respectively. While our emerging brands, the Modelo Chelada brands and Pacifico each delivered double-digit depletion growth. On-premise depletions grew 3.2% and accounted for approximately 12.4% of total volume, reflecting more normalized year-over-year performance following the distortions caused by the pandemic closures and post-pandemic reopenings. For the first quarter of fiscal 2024, shipment volume ran slightly ahead of the depletion volume on an absolute basis. Shipments were in line with our plan throughout the quarter, and depletions ultimately ramped up over the course of the three months, as previously noted. This difference in timing was the primary driver of the variance between shipment and depletion volumes. Additionally, as it has been the case historically, strong shipment volume in the first quarter also reflects inventory preparations with distributors and retailers for the peak busy summer season. That said, distributor inventories remain at normal seasonal levels, so we do not expect this variance to generate any further distortion in Q2 and expect both shipment and depletion volume to be aligned for the full fiscal year. Importantly, we also – we are also well-equipped with capacity flexibility to meet any incremental demand as we move through the year. In regards to selling days, they were flat year-over-year for the quarter. Please note that for fiscal 2024, there will be one more selling day in Q4. Moving on to beer margins. Operating margin decreased by 220 basis points to 38%. This decrease was primarily driven by continued inflationary headwinds in our COGS as we faced an overall cost increase of approximately 4% for the quarter. As anticipated in our guidance for the year, we continue to face higher packaging and raw materials, freight and overhead costs. In Q1, we experienced low double-digit percent increases in packaging and raw materials as inflationary pressures continued throughout the period, albeit at a declining rate over the three months. We also continue to face higher overhead costs related to our brewery expansion as well as increased logistics costs, largely related to higher shipment volumes. As we have previously stated, it is important to note that for fiscal 2024 and consistent with recent years, roughly 70% of our COGS are subject to annual pricing adjustments. These are based on trailing indicators, such as producer price indices and, therefore, typically reflect inflation from the preceding year. The remaining 30% of COGS are subject to fluctuations throughout the year and we can manage the volatility for about half of that 30% through our multi-year hedging program. Will our full year COGS expectations currently remain unchanged, we are monitoring closely any potential favorability in direct commodity and pass-through raw material prices for the approximately 15% non-hedged portion still subject to intra-year adjustments and will provide any relevant updates in future quarters. Additional operating margin headwinds for the beer business were comprised of a $29 million or 17% increase in marketing expense, primarily driven by ongoing media spend to build awareness of our core products as well as recent investments to support the new Modelo Oro product launch and as a result, please note that marketing as a percent of net sales came in at 9.5% for the quarter. A $15 million or 18% increase in SG&A expense which was primarily the result of increased legal costs and an $11 million or 16% increase in depreciation, almost entirely associated with our brewery capacity investments. To help offset the increase in cost to our Beer Business, we are executing on various levers to partially offset the full year high single-digit inflationary headwinds in our overall packaging, raw materials and logistics costs through productivity initiatives. These initiatives have yielded savings of over $30 million for the first quarter of fiscal 2024, and are focused on unlocking efficiencies and cost savings across procurement, operations and supply chain. For fiscal 2024, our guidance for the Beer Business remains unchanged as we continue to target 7% to 9% of net sales growth and operating income growth of 5% to 7%, implying an operating margin of approximately 38%. Now moving on to the Wine and Spirits Business. As Bill noted, over the last few years, our Wine and Spirits Business has been effectively shifting its portfolio to be more focused on higher-end brands that are better aligned with consumer-led premiumization trends while broadening sales channels to also expand into higher growth avenues. To that effect, please recall that we divested a collection of primarily mainstream wine brands from our portfolio during our third quarter in fiscal 2023. Accordingly, during today's discussion, I will be referring to the top line of the Wine and Spirits Business on an organic basis, which excludes the contribution from the divested brands. Consistent with the strategic transformation, the Wine and Spirits Business has undertaken the higher-end brands of the wine portfolio continue to resonate with the consumer and outperformed the corresponding segment of the category in the U.S. tracked channels in Q1. More recently, we've seen even greater strength in our three largest premium and fine wine brand families with Meiomi, Kim Crawford and the Prisoner Wine Company, showing dollar sales growth and acceleration in tracked channels. Similarly, we were also pleased to see the overall spirits portfolio deliver strong dollar sales growth in tracked channels led by Mi CAMPO, and High West ready-to-drink cocktails. However, Wine and Spirits organic net sales were down 6%, largely as a result of the continued impact of ongoing consumer-led premiumization affecting the entire category and the lapping of a particularly strong prior year first quarter for our higher-end brands due to distributor inventory balancing actions. From a channel perspective, we continue to see success through our direct-to-consumer efforts, which delivered 13% net sales growth in our overall DTC channel. While still small compared to the rest of our Wine and Spirits Business, this channel accounted for 4% of total net sales, an increase of 100% versus just a few years ago. Shipments on an organic basis decreased by 9% and depletions decreased by approximately 6%. As noted earlier, this volume decline was primarily driven by our mainstream brands, Woodbridge and SVEDKA, as their respective segments of the categories face ongoing growth headwinds driven by consumer-led premiumization. Again, the Wine and Spirits Business continues to diligently work on the reinvention of Woodbridge and SVEDKA to address these headwinds. In particular, SVEDKA declines have stabilized, and we continue to look at incremental opportunities to revitalize the brand and accelerate improvements. And more broadly, in our spirits portfolio, our craft brands posted nearly 40% depletion growth driven by Mi CAMPO, posting depletion growth of over 80%. Wine and Spirits operating income, excluding the gross profit less marketing of the brands that are no longer part of the business following their divestiture were relatively flat, and operating margin increased 90 basis points to 19%, also reflecting the same exclusion. The margin improvement was primarily driven by the favorable impact of the pricing actions taken last year that primarily focused on our higher-end brands, lower materials and packaging costs, including great blend optimization, lapping of higher freight and warehousing costs and lower marketing expense as we have streamlined our approach to marketing, focusing on the highest return areas of our portfolio. Looking ahead, we expect the performance of the Wine and Spirits Business to accelerate throughout the remainder of the fiscal year through the combination of increased growth contribution from the portfolio's higher end brands, which are already seeing depletions improve in line with our sales efforts and seasonal trends, ongoing growth in DTC channels as well as a return to growth in international markets. Lower marketing spend as we shift towards higher growth areas, focusing on the Aspira portfolio, and continued work toward a revitalization of SVEDKA and Woodbridge in the mainstream category. Accordingly, we remain confident in the outlook for Wine and Spirits, for the year and our guidance for that business for fiscal 2024 remains unchanged. Now let's proceed with the rest of the P&L. Starting with corporate expense, which for the quarter was approximately $50 million from SG&A and overall corporate expense reduction of 19% when compared to the prior year and $33 million from unconsolidated investments related to Canopy and our Ventures portfolio investments. The overall corporate expense reduction is primarily driven by reduced spend in the second wave of our digital business acceleration program. I want to take a moment to talk briefly about the next wave of our digital business acceleration program. For fiscal 2024, our DBA program will have three main goals: first, scaling our prior year's focus areas of marketing, procurement and supply chain across the business; second, introducing a new focus area, logistics, which will center around improving end-to-end visibility, and planning as well as enhancing our network capabilities across the business; and third, reducing third-party consulting fees as we begin to shift the support of our DBA program to in-house, increasing efficiencies and reducing overall cost. Interest expense for the quarter was approximately $118 million. This is a 34% increase from the prior year driven by higher average borrowings and rising interest rates on approximately 10% of our debt with adjustable rates. We ended the quarter with a net leverage ratio of approximately 3.5 times excluding Canopy equity and earnings and expect to continue to make progress towards our approximately 3 times ratio target throughout the year. Our comparable effective tax rate, excluding Canopy equity and earnings for the quarter was 20.7% versus 20.6% last year. For fiscal 2024, we continue to expect the comparable effective tax rate, excluding Canopy equity and earnings to be approximately 19%. Moving to free cash flow, which we define as net cash provided by operating activities less CapEx. For the first quarter of fiscal 2024, we generated free cash flow of $388 million, a 31% decrease versus prior year, driven by a 41% increase in CapEx investments driven primarily by the capacity expansions at our Nava and Obregon facilities and the construction of our new brewery located in Veracruz. Our capacity expansions are underway as planned. Of the planned additions for this year, we fully ramped up 5 million hectoliters at our Obregon facility in Q1 and are planning on another 5 million hectoliters to support our ABA production to be online at our Nava facility towards the end of fiscal 2024. In total, by the end of fiscal 2024, we expect to have about 52 million hectoliters of capacity online, which, as you recall, includes nearly 3 million hectoliters of additional capacity from operational efficiency initiatives executed last fiscal year. Looking ahead, as we continue to consider incremental operational opportunities for our production facilities, we will seek to ensure that we align our additional modular capacity expansions to the timing that best balances both any further enhancements to our existing production footprint and our expectations for continued strong demand for our brands. Turning to cash flow. We continue to expect fiscal 2024 free cash flow to be in the range of $1.2 billion to $1.3 billion, reflective of operating cash flow between $2.4 billion to $2.6 billion, and CapEx of $1.2 billion to $1.3 billion. Comparable EPS for the quarter, excluding Canopy equity and earnings, was $3.04 with an announced dividend of $0.89, bringing our dividend payout ratio to approximately 30% for the quarter. Our fiscal 2024 EPS comparable guidance of $11.70 to $12 remains unchanged. In closing, we believe that this solid start to fiscal 2024 sets us up for a great year ahead. We delivered net sales and volume growth in our Beer Business while implementing cost savings and efficiencies to help counteract the continued inflationary headwinds we face. Our Wine and Spirits Business is honing in on becoming a multichannel global competitor primarily focused on the higher end segment. The growth in our core businesses and execution against our strategies makes us enthusiastic about what the rest of the year will bring and the shareholder value we will be able to create. With that, Bill and I are happy to take your questions. Operator: [Operator Instructions] Our first question today is coming from Dara Mohsenian from Morgan Stanley. Your line is now live. Dara Mohsenian: Hi guys. Bill Newlands: Hi Dara. Dara Mohsenian: So, you sounded pretty bullish about beer depletions towards the end of fiscal Q1 in May and June so far. I was just hoping for a little more detail there. And more specifically, if you can sort of juxtapose that versus the slowdown we have seen in the November to April timeframe. It does seem like a fairly sizable inflection in the other way. So, more detail there would be helpful. And just if these factors driving the better May and June look more extendable and how you think about that? And if I can slip in a second part that I'll pretend is related to the first part, just if industry pricing worsens going forward, given there's obviously a lot of potential changes on the ABI side, how do you think about domestic beer pricing as sort of the risk factor to your volume trends as you look going forward, if, in fact, there's any change from an industry backdrop standpoint? Thanks. Bill Newlands: Sure Dara. Let me cover that one. As we have told you before, March was a particularly challenging month. But as we've also noted, there was great acceleration. I think the easiest way to look at it is to look at Circana data. The 12-week is better than the 26th week. The 4-week is better than the 12-week. And as I noted this morning, the acceleration that we saw coming out of the first quarter is continuing into the second quarter, which I think is very positive. To give you some other perspective that I think would be important and I think people often ask, if you think about Modelo Especial, we had 24 states in the first quarter growing double-digits. In our Chelada business, we had 47 states grow double or triple-digits during the first quarter. And as we've already noted, those things were accelerating coming out of the quarter. So, I think we're quite comfortable that the largely challenging issues that we faced in sort of that winter time period are now behind us, and we're looking forward to a very strong summer period. Relative to your question about pricing, we haven't seen any particular challenges around pricing. In fact, as we run our normal drivers and drags, the effect of pricing has actually decreased in our business as we've gone through the early part of this year. As we've noted other times, we have not seen much trade down at all away from our business and believe that trend is likely to continue, given the strong consumer engagement with all of our brands. Operator: Thank you. Next question today is coming from Lauren Lieberman from Barclays. Your line is now live. Lauren Lieberman: Great. Thanks. I was just curious if you could talk a little bit about on-premise trends, the depletion call out of 3%. It seems as a pretty deceleration versus Q1. So, maybe you just talk specifically to what you've been seeing in terms of on-premise trends later in the quarter? And if you've been talking about this acceleration, in our – excuse me in Circana data, that also applies to the on-premise. Thanks. Bill Newlands: Lauren, on-premise is still not quite back to where we saw pre-pandemic. As we've said before, it was roughly 15% of our business pre-pandemic, and it's still in that 12% to 13% range, as we have come out of the pandemic. And it's probably been a little more volatile, the hit and miss compared to what you see in tracked channels. We believe it's going to continue to do well, and it's going to continue to improve over the course of the summer, as we put the final touches hopefully on the pandemic behind us, but it's admittedly not back to quite where it was ahead of time. The thing that we've often been very pleased about is we've seen many accounts in the on-premise get much more focused on well-known recognized brands. And obviously, whenever that happens, it's to our advantage because of the strength of those brands. Operator: Thank you. Next question is coming from Peter Grom from UBS. Your line is now live. Peter Grom: Thanks operator and good morning everyone. So I kind of wanted to ask about beer margins, maybe two-parts here. Maybe first, I think marketing was up almost 17% this quarter. And I think the expectation in the initial guidance was for a low single-digit increase for marketing for the year. So I guess, how should we think about the phasing of marketing spend moving forward? And I guess has the outlook changed at all, given the high-teens increase in one or two? And then just related, you mentioned that monitoring some favorability across some of your key inputs and we'll provide an update later. But I guess, conceptually, should there be any capability in those in would you anticipate those benefits dropping to the bottom-line? Or would you look to take out marketing further? Thanks. Garth Hankinson: Well, thanks for the question. I mean, as we noted in our prepared remarks, the increase in Q1 marketing spend was largely supportive of the momentum behind our existing products as well as the support of the launch behind Modelo Oro. So marketing as a percent of net sales for the quarter came in at 9.5%. The outlook for the full year is unchanged. We will continue to spend in our normal algorithm, that 9% to 10% of net sales on a full year basis. And so again, nothing changed in that regard. As it relates to some of the improvement that we're seeing, obviously, we're off of some of the highs from a commodity perspective, with the exception of one or two things that have continued to be a little bit - they haven't quite come off their highs just yet. So we do think that there could be some favorability as we move through the year on the commodity side. However, some of that favorability could be offset with the strength of the peso. If we look at the outlook right now, the favorability we're seeing on some commodities is being somewhat or completely offset by the strength of the peso. So right now, we're not seeing necessarily when you take into account the peso and the improving commodity market, but we're not necessarily seeing a big change for the balance of the year. Operator: Thank you. Next question today is coming from Bryan Spillane from Bank of America. Your line is now live. Bryan Spillane: Thanks operator. Good morning everyone. Just one quick one for me, Garth. I think back on the 4Q call, when you talked about cadence, it was 55% of your volume first half and 55% of Wine and Spirits in the back half. So just wanted to see if that was still directionally kind of where we should be thinking as we're beginning to kind of restack our models for the balance of the year. Garth Hankinson: Yes, Bryan, absolutely. No changes in that. And obviously, that's one of the reasons why we think wine will continue to improve through the year. And again, no change that - the Beer business is pretty seasonal and tried and true. So that's absolutely what the outlook is for the Beer Business. Operator: Thank you. Your next question is coming from Bonnie Herzog from Goldman Sachs. Your line is now live. Bonnie Herzog: All right. Thank you. Good morning everyone. I guess I had a question about the Bud Light issue and how it may be impacting your business as well as your distributors? And any changes you might be making there? And then also in light of this, wondering if there might be an opportunity for you to possibly secure more tap handles from Modelo, just thinking about the on-prem business. And then just finally, any changes that you might be making to your marketing strategy or possibly spend levels in light of all of this. Thanks. Bill Newlands: Well, obviously, the single biggest change that we've seen, Bonnie has been that Modelo has taken over as the number one beer by dollars in the U.S. We - Jim Sabia has often said that, that was going to happen in the next few years. But obviously, it happened a little sooner than we had anticipated. I think one of the things that you're likely to see if some of that challenge continues is when we look at shelf sets in the back half of the year. Many retailers look at velocities as they are doing their re-shelf setting, which, again, often happens in the fall. And that always works to our advantage. I think when you - the retailing environment has gotten very, very sophisticated about seeing where the growth profiles are and the velocities against those. We're particularly excited in our Beer business, the fact that the buy rate, both on our core as well as our high-end beer, including the Hispanic consumer, went up year-on-year during the first quarter. I think that's going to continue to be positive for us, and I think it's going to help us accelerate expansion of shelf and again, some of that is coming because of the growth and velocities that you're seeing on our brands, but also the decrease that you've seen, as you know, from some of our competitors. Operator: Thank you. Next question is coming from Nadine Sarwat from Bernstein. Your line is now live. Nadine Sarwat: Hi. Thank you for taking my question. You mentioned some commentary at the start on Oro. I'd be keen to get a little bit more color there in terms of either repeat rates, cannibalizations and feedback from consumers now that it's been out in the market for a while. Thank you. Bill Newlands: You bet, Nadine. It is - the incrementality on the actual market has been better, a slight bit better than what we had anticipated coming out of our test markets. And we are quite pleased with it in the test markets. So we're getting very good response on that. It is already a top 10 share gainer, as I noted in my prepared remarks. And again, we've done this with, I would say, a careful approach. We only have two SKUs in that particular product at this point in time. Recognizing, as Garth pointed out in his remarks, should that continue to show the positive signs that it has to-date, we do have the capacity now to more aggressively go after that as the year continues, which I think, again, is very, very positive and speaks to the success that we've had in our operations in Mexico of creating some ability to go beyond what our initial plans are when those opportunities present themselves. But it's early days. I don't like to get too far over my skis too soon on any new product introduction. But so far, this is going at least according to plan, if not better, and we're very pleased with the incrementality that we're seeing. As I said, it's slightly better than we saw in our test markets. So, all thumbs up for us at this point on that product. Nadine Sarwat: Thank you. Operator: Thank you. Next question is coming from Andrea Teixeira from JPMorgan. Your line is now live. Andrea Teixeira: Thank you. Good morning, everyone. So I wanted to go back to the marketing spend. I think you've mentioned for the year the 7% to 9% of the top line, you started well with 9%. So I was just hoping to reconcile, because you also said you expect it to be up to low-single. I mean not questioning, I think it's probably a great thing to start well, especially now with this commentary about, obviously, what's happening with Bud Light. And then related to - just a clarification on a bit on the gross margin side. And I think, Garth, you mentioned that obviously, you've got $30 million of cost benefit for savings. You also have some benefits from packaging. Is that - I believe we all in this call, we’re pleased to margins the way they came through for beer. So can you comment on a little bit what the lag room? Do you feel even more confident with your guide being conservative as the way I see it? Thank you. Bill Newlands: So let me take the first half, and I'll let Garth take the second half of that. Our marketing approach has been consistent for years. That's one of the things that we think has been tremendous for our brands and why they continue to accelerate in the market. We believe in spending against our brands. We have refined it some. We're getting much more capable in the digital arena than what we were just a few years ago. And I think that's very positive. But we have the number one share of voice in the market and we expect to continue to be - to have that continue going forward. And we believe in it. It's shown tremendous success for our brands as we've gotten to this point, and we believe it's going to be an important part of our continued success moving forward. Garth, I'll let you answer the other, if you would. Garth Hankinson: Yes. On the margin front, look, I mean the 38% for the quarter was roughly in line, maybe slightly better than what our expectations were as we entered the year. We certainly feel confident in our ability to deliver the margin profile that we laid out at the beginning of the year. As I said in my prepared remarks, and as we reminded everyone in the last quarter, roughly 70% of our total COGS are subject to annual adjustments that are backward looking and only 30% have any fluctuation, are exposed to fluctuations throughout the year. And so again, we feel really good about the position that we're in right now, and our ability to deliver the margin profile that's consistent with the - with our earnings guidance. Operator: Thank you. Your next question is coming from Chris Carey from Wells Fargo Securities. Your line is now live. Chris Carey: Hi. Good morning. Just one clarification and then a question on Wine and Spirits. Just the clarification, Garth, you said that you didn't expect any distortion in shipments versus depletions going forward after Q1. And I think you were clear in response to Bryan's question about the mix of cases front half or back half but should the rate of growth of shipments be below the rate of growth of depletions in Q2 or any quarter go forward? And basically, what I'm trying to clarify here is the absolute cases versus the rate of change. So I would just give a clarification then. The question on Wine and Spirits would be - can you just perhaps just suppose the premiumization efforts with the margin delivery in the quarter and perhaps just reaffirm confidence in a way on the margin trajectory of the Wine and Spirits business go forward here? Thank you. Garth Hankinson: Yes. So, on the shipments and depletions. So look, as we said, we expect the shipments and depletions to be on a nominal basis to be largely in line with one another on a full year basis. I think if you look and you go back to the years that are unaffected by the pandemic or weather-related operational difficulties, you'll see that there is some seasonal differences between depletions and shipments. Q1, as we noted, we typically do have some outpacing of shipments relative to depletions on a nominal basis as you're building for the summer season. So - and you're getting distributors and retailers in a position that they're able to meet the demand of that key summer selling season. So that's fairly typical. So I would just ask you to go back and look at some prior periods, again, pre-pandemic. As it relates to our Wine and Spirits Business, again, as we said on the call, we do expect to see continued improvement through the year on the margin front as we continue to see increased traction with our premium portfolio. Again, we're seeing good growth on brands like Meiomi and Kim Crawford and The Prisoner Wine Company. We're continuing to get the benefit of pricing on those. And there are a number of cost initiatives underway in our wine business. As well as seeing improvements there, as we said, on both logistics and on great input costs. So again, that's a business also that, as Bryan noted, we've guided will - the volume there is about 55 back end loaded. So, for all of those reasons, we're confident that we can deliver the year and deliver the margin profile that we previously guided to. Operator: Thank you. Next question is coming from Filippo Falorni from Citi. Your line is now live. Filippo Falorni: Hi, good morning, everyone. A quick question on the health of the U.S. consumer, particularly, if you look about your core Hispanic consumer base, any changes that you see in terms of purchasing behaviors, in terms of package size, trade down or any signs of that? And clearly, your business has improved as the weather improved in California. But any signs there also in terms of changing consumer behaviors, particularly again, in the Hispanic consumer base in the states? Thank you. Bill Newlands: Yes. As you can imagine, that's something that we track very carefully as well. And we're pleased to report that the buy rate, which again is trips times the spend for high-end beer, and this includes the Hispanic consumer was up year-on-year in the first quarter. It's one we track very carefully. It's an important element to us. And it's one that we are very pleased to see in a positive vein. As you point out, we have continued to see acceleration of our share in California, which is an important market during the course of the first quarter as well. And in that particular market, as you would expect, the Hispanic consumer base is very important to us. It's also very important, for instance, in the state of Texas, which saw a double-digit growth profile in the first quarter as well. So we're pretty comfortable that the consumer side of our business remains very strong. And as I noted on the prior call from the prior question, excuse me, that we are continuing to invest heavily against our marketing approach to make sure that we continue to maintain that same consumer demand that we've enjoyed. Operator: Thank you. Our next question is coming from Andrew Strelzik from BMO Capital Markets. Your line is now live. Andrew Strelzik: Great. Thank you for taking the question. My question is around opportunities around price pack architecture as a beer volume growth driver. And I guess what I'm hoping is you can help us understand exactly where you are in that process? Is that something that over the medium-term we should expect to accelerate as a contributor and maybe over the next 12 months versus over the medium-term, where the focus is within that strategy? Thanks. Bill Newlands: Yes. You're entirely right, Andrew. That's something that our beer leadership team is working on aggressively day in and day out. And frankly, we think we can learn a lot from some other players in the beverage arena, particularly in the soda area, where pretty much if you tell me what you've got to spend, there's a pack size or a pack appropriate for a particular price point. So a lot of things we are looking at, things like Modelo, we're looking at different quantities, ounce quantities against some of our packaging. So all of these things are critically important. Part of the reason you're seeing the massive acceleration in the high 40 percentile in the Chelada business, is what used to be only a 24-ounce can is now available in both multi-pack and 12-ounce opportunities. So again, we think – and that's been part of the big acceleration in the Chelada area. So this is an area that we're spending a lot of time on ourselves to make sure that whatever the consumer has available to spend against our brand, that we have something available to them within our portfolio to make sure that they can take our products home with them when they leave a store. Operator: Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Bill for any further or closing comments. Bill Newlands: Thank you, Kevin, and thank you all for joining today's call. We're off to an excellent start in fiscal 2024. Our Beer Business delivered strong growth for the quarter with performance accelerating since the beginning of the year and into Q2. The higher-end brands of our Wine and Spirits portfolio continued to outperform and track channels and to drive margin improvement. We remain confident in our outlook for the full year and are building great momentum as we head into the key summer selling season for our Beer Business and the seasonally stronger second half for the Wine and Spirits Business. In closing, I want to wish you all a happy fourth of July for those of you celebrating that and hope you choose to enjoy your celebrations with some of our great products. Thanks again, everyone, and have a great summer. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Operator: Greetings, and welcome to the Constellation Brands’ Fourth Quarter and Full Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to, Joe Suarez, Vice President of Investor Relations. Thank you. You may begin. Joe Suarez: Thank you, Darryl. Good morning, all, and welcome to Constellation Brands year-end fiscal 2023 conference call. I’m here this morning with our Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the Company’s website at www.cbrands.com. Please refer to the news release and Constellation’s SEC filings for risk factors, which may impact forward-looking statements made on this call. Following the call, we will also be making available in the Investors section of our company’s website a series of slides with key highlights of the prepared remarks shared by Bill and Garth in today’s call. Before turning the call over to Bill, in line with prior quarters, I would like to ask that, we limit everyone to one question per person, which will help us end our call on-time. Thanks in advance. And now, here is Bill. Bill Newlands: Thank you, Joe, and good morning, everyone. I’m pleased to report that our team delivered another solid year of performance in fiscal ‘23, driving a 7% increase in net sales and a 3% increase in comparable operating income, despite elevated inflationary headwinds faced throughout the year. We delivered record net sales and comparable operating income of $9.5 billion and $3 billion, respectively. We were recognized as the number one growth leader among large CPG companies by IRI and Boston Consulting Group in calendar year ‘22. And we’re the only CPG company of scale in recent times to make their top 10 ranking for 10 consecutive years. Our performance was driven by strong execution of our strategy, which centers on continuing to build powerful brands that people love; to introduce consumer led innovations that address emerging trends and consistently shape our portfolio for profitable growth; to deploy capital with discipline, while balancing priorities; and operate in a way that is both good for business and good for the world. Here’s how each of our segments delivered against each of these objectives in fiscal ‘23. Our Beer Business delivered another year of double-digit net sales growth, and its 13th consecutive year of shipment volume growth, while maintaining best-in-class margins. We extended our lead as the number one high end beer supplier in the U.S. and as the leading share gainer in IRI channels with a 12% increase in dollar sales. We increased depletions by nearly 27 million cases, and delivered net sales and operating income growth well above the initial top end of our guidance range. We continue to build momentum for our anchor brands. Modelo Especial maintained its position as the top share gainer and the number one high-end beer brand in the category, increasing depletions by 9%; Corona Extra was the third largest share gainer and the number three high-end beer brand in the category, increasing depletions by nearly 4%; and Pacifico gained significant momentum as a top 10 share gainer in tracked channels, delivering depletion growth of over 30%. Several consumer-led innovations within our Modelo Chelada franchise served as growth catalysts in fiscal ‘23. Our Naranja Picosa flavor, a new variety pack, added over 1.6 million new cases of depletions to our Chelada brands. Our new Limón y Sal 12-ounce, 12-pack helped to more than double the depletions of that flavor to over 5.6 million cases. And in tracked channels, the Limón y Sal 12-pack was a top 15 new package SKU and a variety pack of top 10 new brands. We continue to invest in our beer business, deploying over $800 million in capital investments in fiscal ‘23, which supported the ongoing expansions of our growing capacity at Obregon, the continued development of our new ABA alcohol production line at Nava and the early stage work at our new site in Veracruz. As part of our commitment to water stewardship, we recently worked with local efficients and water authorities to complete a project that updated water infrastructure in the city of Zaragoza, near our Nava facility, which improved water accessibility for most of the families in this town that is approximately 13,000 people. This is just one of a number of efforts we have underway in Mexico as part of our water stewardship commitment. As we look to fiscal ‘24, we will continue to prioritize investments against our core brands in Modelo Especial, Corona Extra and Pacifico. We believe that the fundamental growth drivers for these brands, including awareness, distribution and demographic upside opportunities, remain as strong as ever. We’re excited about several consumer-led innovations that are currently hitting the market, including Modelo Oro, which exceeded both external and internal benchmarks in three test markets where we trialed it last fiscal year; and Corona nonalcoholic, which addresses the rapidly growing betterment trends. We’ll also continue to build momentum for our Chelada franchise with the introduction of a second 12-ounce 12-pack for our best-selling traditional Chelada flavor and with the new spicy watermelon flavor, Sandia Picante. And we’ll continue to deploying capital to enhance our growing capacity to meet the anticipated continuing robust demand for our products, both near and long term. Shifting gears. Our Wine and Spirits business has transformed from a U.S. wholesale business, mainly serving the mainstream segment to a global omnichannel competitor with a higher-end focused portfolio. And this strategy is working as the strength of our higher-end brands supported our outperformance against the broader market. While lower demand for our mainstream brands drove a 2.1% volume decline for our Wine and Spirits portfolio and IRI channels, we outperformed the 2.6% volume decline for the combined U.S. Wine and Spirits categories in fiscal ‘23. We continue to focus on the growth of our consumer preferred higher-end brands within our portfolio. Our Aspira portfolio, which includes our Fine Wine and Craft Spirits brands, delivered double-digit shipment growth. In addition, it significantly outpaced the Fine Wine and Craft Spirits segment, led by The Prisoner Wine Company, which delivered depletion growth approaching 10% and our Craft Spirits portfolio, which achieved depletion growth approaching 29% in U.S. wholesale. In addition, these brands delivered exciting consumer-led innovations such as The Prisoner’s, Blindfold, Blanc de Noir, Casa Noble’s ultra-premium Marqués tequila and our Mi CAMPO ready-to-drink cocktails, which are still in early stages of their life cycles, but are contributing to our expanded presence -- higher end of the market. Meanwhile, our Ignite portfolio continued to drive the momentum of our premium brands such as Meiomi and Kim Crawford, which delivered depletion growth of 5% and 7%, respectively, both gaining share in their respective segments. We continued to complement the growth of our core premium products with innovations that broaden the offerings of these consumer preferred brands. As an example, Meiomi’s new Red Blend remains the number two wine SKU since its launch and Kim Crawford’s Prosecco was the number two new wine brand. Within our Ignite portfolio, the performance of our higher-end premium brands was offset by our remaining mainstream Wine and Spirits brands, namely Woodbridge and SVEDKA, which experienced declines versus the market in the U.S. We continue to focus on stabilizing and revitalizing these brands. To further support our strategy to reshape our Wine and Spirits portfolio to the higher end, we divested several residual mainstream brands and acquired a smaller, higher-end wine brand and a ready-to-drink cocktail brand. Of note, our relatively recent acquisition of My Favorite Neighbor portfolio is delivering substantial growth and performing above our initial expectations. So overall, in fiscal ‘23, while net sales for our Wine and Spirits business declined just under 4%, a large part of that was due to the recent divestiture of primarily mainstream brands that I just referenced. And despite the strong performance of our higher-end brands, on an organic basis, net sales declined by 2%, mainly driven by lower demand for our mainstream brands, reflecting continued consumer-led premiumization trends, which I also noted earlier. We continued to build momentum for our higher-end brands and continued to accelerate our performance in key channels, such as direct-to-consumer and international markets, which grew net sales by 29% and organic net sales by 4%, respectively. Looking forward, we see an opportunity to continue to grow the DTC and international markets by investing in our Premium Wine, Fine Wine and Craft Spirits brands that tilt their growth toward DTC, international routes to market. Importantly, our Wine and Spirits business delivered operating margin expansion in fiscal ‘23, further demonstrating the benefits of its strategy and making additional progress towards its medium-term targets. Overall, we are exiting the year in Wine and Spirits on solid footing, and I remain confident in the pathway of that business. The solid performance driven by our beer and Wine and Spirits teams enabled us to return nearly $2.3 billion to shareholders in share repurchases and dividends in fiscal ‘23, and we further demonstrated our capacity to conduct opportunistic share buybacks with an additional nearly $300 million of repurchases in the fourth quarter. This means our dividend payments and buybacks since fiscal ‘20 totaled more than $5.4 billion, well above our $5 billion goal. Moving forward, we plan to continue to deliver against our capital allocation priorities with our disciplined approach. Our fiscal ‘24 earnings and cash flow outlook should enable us to move closer to our net leverage ratio target to support dividend payments in line with our payout ratio target to continue to deploy capital to beer growing capacity additions and hospitality investments in Wine and Spirits business and to opportunistically pursue additional share repurchases and small gap filling acquisitions. Lastly, we remain committed to making meaningful progress against our enterprise ESG goals, which include reducing Scope 1 and 2 greenhouse gas emissions by 15% in fiscal -- by fiscal ‘25 from a fiscal ‘20 baseline and restoring more than 1 billion gallons of water withdrawals from local water ships, while also improving accessibility and quality of water for communities where we operate between fiscal ‘23 and ‘25. Water stewardship in particular, has been a top priority for our team, and I’m pleased to announce that we have already surpassed our fiscal ‘25 goal related to water restoration. We’ll look to announce later this year new targets for our water stewardship efforts as well as other important areas that are part of our ongoing commitment to ensuring the long-term viability of our local communities and this environment. We have also significantly enhanced our ESG reporting getting references aligned to the Sustainability Accounting Standards Board framework and considering recommendations from the task force on climate-related financial disclosures. As we look ahead, we intend to continue to take steps to more fully integrate ESG into our core business planning process, establishing thoughtful, specific, measurable and time-bound targets supported by robust strategies and operating plans that we can map progress against. We believe this approach best serves the interest of our business, shareholders, other stakeholders and our surrounding communities as it seeks to integrate ESG into our business operations and helps ensure that we can clearly deliver on our stated commitments. So in summary, we delivered another solid year of performance, resulting in record net sales and comparable operating income, despite elevated inflationary headwinds faced throughout the year. Our performance was driven by strong execution of our strategy, and we continue to make good progress against all dimensions, building brands that people love, complementing growth of our core products with consumer led innovation, deploying capital with discipline while balancing priorities against our organization and continuing to operate in a way that is both, good for business and good for the world. With another strong year of execution against our strategy behind us, we’re quite confident in our ability to continue building momentum in fiscal ‘24. And with that, I will turn the call over to Garth. Garth Hankinson: Thank you, Bill, and good morning, everyone. Fiscal ‘23 was another solid year for our company as we continued to relentlessly deliver on our operating plans and strategic initiatives. Despite the inflationary pressures that both our industry and consumers have been facing, we demonstrated yet again the strength of our adaptable businesses, higher end brands and resilient teams. We expect the same focus and dedication to further support our momentum in fiscal ‘24. So, let’s review in more detail our full year fiscal ‘23 performance and fiscal ‘24 outlook. As always, I will focus on comparable basis financial results. Starting with the fiscal ‘23 performance of our beer business. Net sales increased $713 million or 11%, exceeding the upper end of our guidance range. This was primarily driven by solid shipment growth of approximately 7% as strong demand continued across our portfolio, supporting a $464 million uplift in net sales from incremental volumes. Net sales also benefited from favorable pricing in excess of our unusual 1% to 2% average annual pricing algorithm. As we previously noted, the incremental pricing actions taken in fiscal ‘23 were in response to cost pressures across the value chain due to inflationary headwinds. We introduced larger pricing increases and made pricing adjustments in certain markets ahead of our regular case. Depletion growth for the year was over 7%, which, as Bill noted, was driven by continued strong growth in our largest brands, Modelo Especial, Corona Extra, Pacifico and Modelo Chelada brands. On-premise depletions grew 15% year-over-year, and on-premise volume accounted for approximately 12% of total depletions in fiscal ‘23, nearing the mid-teen volume share from prior to the start of pandemic. As previously guided, our shipments and depletions were closely aligned on an absolute basis. Moving on to the bottom line for our beer business. Operating income increased 6%, also exceeding the upper end of our guidance range. This increase was largely driven by a $492 million benefit from net sales growth and yielded an operating margin of 38.3%, which was in line with our implied guidance range. As expected and noted over fiscal ‘23, operating margins were negatively affected by inflationary headwinds. For the import portion of our beer business, which represents nearly the entirety of COGS, we faced an increase of approximately 16% in our raw materials and packaging costs, which was largely driven by inflationary pressures that resulted in an 8% increase on a per case basis. This reflected some benefits from the lapping of the seltzer obsolescence charge in fiscal ‘22 as excluding any obsolescence impact, the increases in our raw materials and packaging costs would have been 20% on an absolute basis and 12% on a per case basis. Note that these two COGS categories, including the obsolescence impact represented just over 55% of the import portion’s COGS in fiscal ‘23. We also saw a 12% year-over-year increase in freight costs, mainly driven by incremental shipment expenses that were offset by efficiency initiatives. Freight costs were 5% up on a per case basis and account for just under 25% of import. And we faced a 14% rise in labor and overhead costs that was mainly driven by our brewery capacity investments. Labor and overhead were up 7% on a per case basis and accounted for just under 15% of import COGS. In addition, operating margins for the beer business were also affected by a $41 million or nearly 22% increase in depreciation, almost entirely associated with our brewery capacity investments. A $55 million or nearly 9% increase in marketing spend related to incremental investments in sports sponsorships and a $48 million or nearly 14% increase in our -- in other SG&A, driven by incremental sales support to align with the momentum of our beer brands. Note, however, that while our marketing investments increased when compared to the prior year, they were still within our 9% to 10% range as a percentage of net sales. All of that said, and it’s important to note that we still delivered best-in-class margins for our beer business in fiscal ‘23. Now shifting to our Wine and Spirits business. First, please recall that we divested a collection of primarily mainstream wine brands from our wine portfolio in fiscal ‘23. So during today’s remarks, I will also be discussing top line on an organic basis, which excludes the contributions from the divested brands. As Bill noted, despite the strong performance of our higher-end Wine and Spirits brands on an organic basis, net sales decline of 2%, ultimately landing in our guidance range. The decline in net sales, excluding the impact of the divestiture, was primarily driven by our mainstream brands as they faced challenging market conditions and lapping of prior fiscal year inventory build. Again, this decline was partially offset by strong growth in our higher-end brands, which outperformed in the U.S. in the higher-end category for both Wine and Spirits and total U.S. wine market. Our higher-end brands also had strong growth in our emerging and rapidly expanding direct-to-consumer channels and international markets. Over time, we expect our portfolio to continue to migrate toward the higher end and for these higher-end brands, channels and markets to support our top line growth acceleration. Shipments on an organic basis decreased by under 8% and depletions decreased by 3%. As just noted, this volume decline, which reduced organic net sales by $148 million, was driven primarily by our mainstream brands, as mix and price, largely driven by our higher-end brands provided a $111 million uplift to organic net sales. Wine and Spirits operating income, excluding the gross profit, less marketing of the brands that are no longer part of the business, following their divestiture in fiscal ‘23, increased 2%, and operating margin increased 80 basis points to nearly 23%, also reflecting the same exclusion. This margin increase was driven by a $12 million uplift from net sales flow-through as favorable product mix was supported by lower grade costs as well as a strong New Zealand harvest. Benefits from other cost savings actions primarily resulting in lower-grade costs that helped to partially offset higher logistics material costs and more efficient marketing expense from enhanced investment strategies, which increased focus the highest return opportunities which supported a $20 million tailwind to operating income. These benefits were partially offset by $17 million in higher SG&A from increased headcount as we continue to strategically invest in our growing DTC channels. We remain well positioned to continue to expand margins in our Wine and Spirits business over time with mix improvements and productivity initiatives in the future. Now moving on to the rest of the P&L. In fiscal ‘23, our corporate expense included approximately $270 million from SG&A and $20 million from unconsolidated investments related to our ventures portfolio, all-in, landing at the low end of our guidance at $290 million. Within the SG&A portion of corporate expense, the implementation of our DBA program, which stands for digital business acceleration, accounted for $47 million. As a reminder, we introduced our multiyear DBA initiative in fiscal ‘23 and expect similar investments to carry into fiscal ‘24. Interest expense for the year increased 12% to approximately $400 million, coming in at the upper end of our guidance range. This increase was driven primarily by the financing of the stock reclassification, which took place in Q3 of fiscal ‘23 as well as the impact of rising interest rates on approximately 15% of our debt with adjustable rates. Our full year comparable basis effective tax rate, excluding Canopy equity earnings, came in at 19.2% versus 17.5% last year as we lapped favorability in fiscal ‘22, primarily driven by higher stock-based compensation activity. Free cash flow for fiscal ‘23, which we define as net cash provided by operating activities, less CapEx, was above the upper end of our guidance range at $1.7 billion. CapEx totaled $1 billion, including over $800 million of investment in our beer business. CapEx came in below our guidance, primarily due to timing shifts in the spend for certain materials and equipment of our Mexico brewery investments at our Nava and Obregon facilities. As of the end of fiscal ‘23, our Mexico brewery operations had a total nominal capacity of approximately 42 million hectoliters. This includes 32.5 million hectoliters at our Nava facility and 9.5 million hectoliters at our Obregon facility. This represents 1 million hectoliter uplift at our Nava facility relative to the capacity we communicated a few months ago. This uplift is once again the result of our continued productivity initiatives that have unlocked additional production flexibility from the existing footprint of our breweries. As a reminder, earlier this year, we shared that these initiatives had unlocked additional capacity of 1.5 million hectoliters at Nava and 0.5 million hectoliters at Oregon. In light of the 2.5 million hectoliters of productivity capacity unlocked at Nava in fiscal ‘23, we have slightly adjusted the ramp-up plans for our new ABA production line at that facility, which I will discuss shortly. With that, let’s move now to our outlook for fiscal ‘24. We expect a comparable basis diluted EPS to be in the range of $11.70 to $12, excluding Canopy equity earnings. For fiscal ‘24, our beer business is targeting net sales growth of 7% to 9%. As Bill discussed earlier, we expect continued strong volume growth momentum to be largely driven by our icon brands, Modelo Especial and Corona Extra and next wave brands, Pacifico and the Modelo Chelada brands. We anticipate our full year fiscal ‘24 shipments and depletions to track each other closely, both on an absolute basis and in terms of the year-over-year comparison. As a reminder, despite some fluctuations in the last few years in our quarterly shipment cases and year-over-year growth rates due to severe weather and pandemic-related impacts, we expect the cadence of our shipments in fiscal ‘24 to follow a more traditional seasonal pattern. We anticipate approximately 55% of our fiscal ‘24 wines to ship in the first half as we meet peak summer demand for our products. In addition, from a quarterly perspective, particularly when looking at year-over-year growth rates, we also expect shipment and depletion comparisons to still show some variability as they always have, as we manage inventory levels around seasonality throughout the year and our regular brewery maintenance activities in Q3. All of that said, we do not expect to have any incremental lapping variability in our shipment growth rate for Q4 as we did in fiscal ‘23. From a pricing perspective, at this stage, we are planning for average annual pricing within our 1% to 2% algorithm. We are mindful that consumers will likely continue to face challenging macroeconomic conditions for the foreseeable future and that our pricing increases in the last 2 fiscal years were above this algorithm. As we advance throughout the year, we will continue to monitor inflationary dynamics and potential recessionary risks to ensure our pricing is appropriately balanced to support the momentum of our brands. We will provide any further update in that regard as part of our future quarterly calls. In terms of operating income growth. Our beer business is targeting 5% to 7%, which implies a fiscal ‘24 operating margin of approximately 38%. As we have discussed, we continue to expect our beer operating margin to be negatively impacted by inflationary COGS headwinds. The majority of these relate to the year-over-year adjustments in our packaging and raw material costs, which, on average, represent a high-single-digit increase in absolute terms for these inputs in the import portion of our beer business. While prices for some of these inputs are off their peaks, most are subject to contractual terms that reflect annual adjustments based on trailing pricing data and some still remain significantly elevated relative to pre-pandemic prices. In fiscal ‘24, we expect packaging and raw material for our imports to account for approximately 55% to 60% of our costs. In addition, we expect freight to be approximately 20% to 25% of costs and reflect a high single-digit year-over-year absolute increase as we continue to face annual volume and contractual increases. And labor and overhead to be approximately 15% of costs and reflect a high-teens increase in absolute terms, largely driven by increased headcount and training tied to our brewery capacity investments. For our beer business, we expect incremental depreciation of approximately $35 million to $40 million as we continue to bring into production incremental growing capacity from our investments, particularly at Obregon, in fiscal ‘24. As noted earlier, the incremental capacity unlocked from our existing Nava facility footprint from productivity initiatives has given us additional flexibility on the ramp-up of our new ABA line. We now intend to spend a bit more time optimizing that new additional ABA production to better support the strong growth of our Modelo Chelada brands. Accordingly, we anticipate the ABA line will be ramping up in Q4 of FY24. Conversely, we have been able to accelerate the ramp-up of our next 5 million hectoliter investment at Obregon to Q1 of fiscal ‘24. This is being enabled by the move of brewery and package equipment that we had previously intended for use in Mexicali. Now, going back to operating margins. We plan to execute a number of productivity initiatives to help offset inflationary pressures. The expectations shared for our beer business COGS in fiscal ‘24 have operational efficiencies and cost-saving actions embedded into them. These initiatives include benefits from our ongoing hedging program and contractual negotiation efforts as well as from our fiscal ‘23 DBA program. To that end, it is relevant to note that only around 25% of our beer business COGS are subject to contractual pricing adjustments within fiscal ‘24, and then we expect our hedging program to reduce our exposure to those adjustments for about 10% to 15% of COGS. In addition, we expect to deliver marketing and other SG&A efficiencies, including an even greater focus on optimizing these types of investments toward our icon and next wave brands. So despite remaining slightly below our medium-term operating margin target we expect our fiscal ‘24 efforts to still yield best-in-class results for our beer business, and we expect all quarters within fiscal ‘24 to deliver operating margins above this latest quarter’s result. Moving to the outlook for our Wine and Spirits business. Our fiscal -- for fiscal ‘24, we are targeting organic net sales to be relatively flat within 0.5 percentage point from fiscal ‘23 net sales, excluding $38.5 million of net sales from the brands divested in fiscal ‘23. We expect to continue the strong growth of our Premium Wine, Fine Wine and Craft Spirits brands and in our DTC channels and international markets. These segments of our business will help to offset the headwinds we expect to face with our mainstream U.S. wholesale brands, which are facing challenging market conditions due to ongoing consumer-led premiumization. Conversely to our beer business, we expect our Wine and Spirits business to ship approximately 55% of our fiscal ‘24 volumes in the second half, again, in line with seasonal demand for our Wine and Spirits products. More notably, despite continued inflationary pressures, we are targeting operating income growth between 2% to 4%, exclusive of $19.5 million of gross profit, less marketing, related to brands divested in fiscal ‘23. This implies an operating margin improvement of at least 40 basis points. The primary margin improvement drivers for fiscal ‘24 include additional mix improvement, particularly with our further optimized portfolio, driven by ongoing growth in our higher-end brands from continued consumer-led premiumization trends, enduring growth momentum in our higher-margin direct-to-consumer channels and targeted international metro areas, primarily through our Aspira portfolio brands, additional innovation with new consumer-led products that help extend our higher-end offerings and stabilize our mainstream brands, reduced marketing spend relative to net sales with optimized investments increasingly focused on high-growth, high-return areas and additional SG&A reductions in cost management initiatives. Similar to our beer business, we expect approximately 25% of our Wine and Spirits business COGS to be subject to adjustments within fiscal ‘24. Now moving to expectations for the rest of the P&L in fiscal ‘24. Corporate expense, including just the SG&A portion, is expected to be approximately $270 million. We expect to see favorability from the termination of certain compensation and benefits that will not be payable in fiscal ‘24 following the retirement of Rob and Richard Sands from their executive roles for the reclassification agreement, approved by shareholders in fiscal ‘23, offset by the impact of inflationary pressures and merit-driven salary increases. Interest expense is expected to be approximately $500 million for the year. This is a 25% increase from fiscal ‘23 and is primarily due to the incremental interest expense associated with the financing of the reclassification. The comparable tax rate, excluding Canopy equity and earnings is expected to be around 19%. Rounding up the P&L, we anticipate approximately $40 million in non-controlling interest benefits and weighted average diluted shares outstanding are targeted at approximately 184 million. Turning to cash flow. We expect fiscal ‘24 free cash flow to be in the range of $1.2 billion to $1.3 billion, which reflects operating cash flow in the range of $2.4 billion to $2.6 billion, and CapEx of $1.2 billion to $1.3 billion. CapEx includes approximately $1 billion to support our Mexico brewery investment and most of the remainder will support our Wine and Spirits hospitality updates. To wrap up, I would like to reiterate that our refreshed capital allocation priorities that we have introduced and discussed throughout fiscal ‘23 and earlier by Bill remain unchanged. We remain committed to a disciplined financial foundation by maintaining an investment-grade rating as we move towards our net leverage ratio target, delivering returns to shareholders via both dividends in line with our payout ratio goal and through incremental share repurchases to at least cover dilution while remaining opportunistic for any additional repurchases, continuing to support the growth of our businesses through deployed capital in our beer brewing additions and in our Wine and Spirits hospitality investments. And lastly, through smaller acquisitions that will fill gaps or enhance our existing portfolio. We believe that this strong disciplined capital allocation strategy, combined with exceptional execution, will empower us to be a premier shareholder return generator for the foreseeable future. With that, Bill and I are happy to take your questions. Operator: Our first question comes from the line of Andrea Teixeira with JPMorgan. Andrea Teixeira: Thank you. Good morning. Can you comment on what you’re seeing most recently and that makes you feel confident about the 7% to 9%, your sales growth outlook and particularly in light of the broad deceleration in consumption called out by retailers in March? And related to that, are there any dynamics between shipments ahead of the Cinco de Mayo, start of the summer and the depletions as we move into the first quarter and throughout the year? And if I can squeeze on the pricing front, you mentioned the 1% to 2%, but I understand some of the competitors decided to just pushback. And given the dynamics that you had towards the fall last year, if you’re going to be mostly looking to do pricing for the fall? Thank you. Bill Newlands: Sure. Thanks for the question, and good morning to you. A couple of things that give us the confidence in the 7% to 9% range. First of all, we saw a very strong start to the year in markets like Texas and Florida, which have both seen double-digit increases in the first month of the year. Now acknowledging the state of California has been challenging, but I’ll tell you what I’m very excited about, about California. In Q4, we saw our distribution growth, our effective distribution grew by 3.6%, Q4 versus the Q4 prior, or simple distribution despite a very broad market capability there, saw a simple distribution grow up 2%. And our draft panels went up over 9%. What this says to me is that we are well prepared when California gets back into their normal weather pattern versus what we saw this year. So, we’re very comfortable. Obviously, we wouldn’t be giving you this guidance if we thought otherwise. But we feel very comfortable that we’ll be in that 7% to 9% range that we noted today. Garth, do you want to touch on the pricing point? Garth Hankinson: Yes. So I mean, as we stated in our prepared remarks, we’re comfortable with the pricing at our 1% to 2% algorithm. Obviously, we will continue -- our approach to pricing gives us the flexibility throughout the year to monitor what’s the macroeconomic and the inflationary recession impacts -- potential recession impacts are on our consumer. It allows us to monitor competitor behavior and give us the flexibility to act agilely when we see a reason to move on price. So that will be something that I said in my prepared remarks that to the extent we make any changes throughout the year, we will provide updates on our regular quarterly calls. Operator: Our next question comes from the line of Kevin Grundy with Jefferies. Kevin Grundy: Just a quick cleanup. Bill, I’m not sure if you can comment on March depletion trends. I mean, presumably, given the importance of California, I suspect it’s probably running a bit below what we saw in the fourth quarter. Maybe you could just comment on that. But my broader question is on the Oro launch, and maybe just follow-up there on your expectations, comments on cannibalization risk. And then I think importantly, sort of context around how we should be thinking about this rollout relative to the premier launch several years ago and the degree of incremental spend? If I’m not mistaken, Garth, you can correct me if I’m wrong, I think that was in the $35 million to $40 million range of incremental spend behind that rollout, but just some context around there would be helpful. So, thank you both for that. I appreciate it. Bill Newlands: Sure. So that I don’t step on myself after I just got done saying at CAGNY that I wasn’t going to talk about depletions anymore, I won’t specifically talk about March depletions other than to say they’re pretty much in line with what we expected. As I did note in my prior answer to Andrea, Texas, Florida were up double digits. Certainly, California was challenged this particular start to the year. But I think it’s safe to say that as we progress in the year, it’s extremely unusual to have rain, snow or flooding, once you get into May, June, July and August in the state of California. So much like we’ve seen many other times when there’s a dislocation of particular market, we expect that that would pass over time. Second, related to your Oro question, we’ve said we’re going to be very sensible about the rollout of Oro. I’m pleased to say that our beer group has done an extremely good job of getting distribution into the marketplace. As you know, we’re less than a month in on that particular project. But we were very positive about the cannibalization rates that we saw in the 3 test markets. We saw incrementality above 60% in those markets, which we are very pleased with. And we really think it fills a gap, particularly with our core Hispanic consumer, who has been looking for an alternative to some of the other light beer scenarios. So, we’re very positive about that, but we’re going to do it in a very sensible and approachable way. For those of you who watched March Madness, you would have noted, we had -- we started our media campaign during that particular event. And this launch will be supported by significant media over the course of the summer. Operator: Our next question comes from the line of Dara Mohsenian with Morgan Stanley. Dara Mohsenian: On the beer depletion side, can you discuss a bit the trends you’re seeing on-premise? The gap looked better in terms of on-premise and some of the smaller store on track channels relative to track channels versus Q2 and Q3. So just would love to get an update there. And then, also do you think you’re seeing any broader macro impacts in your portfolio? Maybe give us a bit of update on trade down in general in beer and what’s occurring there and any impacts to your business? Thanks. Bill Newlands: You bet. So in terms of on-premise, on-premise continues to grow, as we noted in our prepared remarks. We continue to see acceleration in the on-premise, which we think is very good. We’re not quite back to where we were from a normal standpoint that where we sat before the pandemic, but we continue to make progress against that as we are seeing more and more often that consumers are being out in the marketplace and consuming on-premise. So, we remain optimistic. Our growth profile in the on-premise really continues to accelerate. As I think many on-premise accounts are looking more and more for brands that resonate consistently with consumers. And obviously, we have those and that speaks very well. I used the example of a well saturated market like California seeing draft panels on our business were up 9% in the fourth quarter last year. And I think that’s a great reflection of the potential that still exists for us in the on-premise. Relative to your question about trade down, we have seen very little trade down against our portfolio. Certainly, there has been some, it appears, but it tends to occur at lower price points than ours. So there are some consumers that are showing some concern about general inflationary macroeconomic trends. But by and large, that has occurred at lower price points that where our brands compete. And that’s fairly consistent with what we’ve seen relative to the pure loyalty we see against our brands. It’s the benefit of having consumer preferred brands in our portfolio. Operator: Our next question comes from the line of Rob Ottenstein with Evercore. Rob Ottenstein: Just a follow-up on Garth on some of your guidance comments, and I don’t know if I -- just maybe I didn’t follow you. But I think you were talking about productivity measures that would help get to the margin target. And then you talked kind of very quickly or with some points on hedging programs and the amount hedged or not -- and I just -- I apologize, I lost you on that. But I was kind of trying to connect what hedging would have to do with productivity and trying to exactly the point you were trying to make. Garth Hankinson: Yes. So sure, Robert, thanks for the question. And just so as Joe indicated at the beginning of the remarks, we are going to be posting some slides to our website immediately following this call specific to the efficiency -- productivity efficiencies and the hedging. The point on that is it’s just like in any given year, we have certain productivity goals, efficiency goals, savings to help offset the impact of cost increases related to inflation. So, that’s no different than any other year. And the point of the comment was that those increases that I had stated previously, those are net of those efficiencies. And then on the point around hedging is just that we continue to have a fairly robust hedging policy program. Typically, we are only able to hedge around 10% to 15% of what’s in our cost of goods. And so, we are hedging against those things right now. And as we enter this year, we’re at where we would normally be in terms of the percent of commodities that are hedged. Operator: Our next question comes from the line of Nik Modi with RBC Capital Markets. Nik Modi: Just a few follow-ups. So -- just curious on -- Bill, you mentioned some of the distribution gains you’ve seen in California. Just was hoping to get some context on your view on resets and kind of what you’re seeing more broadly, especially in the markets where you’re undershared relative to where you are in California? And then the second question is just there’s been a lot of discussion in the trade about some of the other brewers perhaps rolling back some pricing or promoting back some of the recent price increases. Just wanted to get some context on kind of philosophically how you think about if that were to happen, kind of would you need to react or not? And just would love your context and perspective on that. Bill Newlands: Yes. You bet, Nik. Thanks for the question. One of the things that relative to resets, we are doing extremely well in reset situations. And I think it’s just simple, good business because with our portfolio representing more than 80% of the growth in the total beer category, it just makes sense for retailers to increase our shelf positions versus the competition. You see, as we said in our prepared remarks, Modelo being the number 1 growth driver and Corona being the number 3 growth driver and Pacifico being the top 10 growth driver, these brands demand more space on the shelf. And we’re very fortunate that our team is specifically focused on that very topic. Relative to pricing, as Garth noted, we carefully analyze the elasticities against our brands, and I’ve said this on many other occasions, we’re very mindful that we want to keep our consumer. And our pricing strategies over time have been to be sensible and approachable to ensure that we keep our consumers. We’re going to raise within our normal algorithm this year in the 1% to 2%, as Garth noted, but we should then expect no rolling back of any pricing scenarios from us this year because we have been judicious and sensible about keeping the consumer engaged with us as we move pricing in the past. We’ll continue to monitor to that carefully as the year goes on, as we always do. On a monthly basis, we analyze elasticities and drivers and drags, which you’ve all heard from Jim Sabia over time. But we see absolutely no need to be rolling back pricing in any market because we think we were very appropriate in what we have done historically, which should allow us to be right back in our algorithm going forward. Operator: Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I had a question on your free cash flow guidance of $1.2 billion to $1.3 billion this year. It’s a fair amount below your historical run rate. So maybe you could highlight the key puts and takes that are going to impact your free cash flow this year? And then, you completed your share repurchase goals to date and your $5 billion return to shareholder target, but you didn’t necessarily announce a new return goal. So, curious how you’re thinking about your capital allocation priorities going forward? And then, maybe what’s realistic to consider for cash return to shareholders this year and beyond thinking about this in the context of the CapEx needs, your leverage targets, et cetera? Thanks. Garth Hankinson: Thanks, Bonnie. So, to start on free cash flow. I guess to start on free cash flow, we need to start at operating cash flow, right? So operating cash flow is a bit down this year versus last year. And the primary drivers of that are really a couple fold. One is there is the increase in interest that I referenced in my opening remarks pretty much at 25% increase on a year-over-year basis, and that’s really reflective primarily of the debt and the interest associated with the collapse, and then to a lesser extent, the remaining floating rate debt that we have on our books. Additionally, we’ll have higher cash paid taxes next year due to the U.S. -- and some nonrecurring tax benefits that we had in FY23 and then to a smaller extent some changes in working capital. Moving further down the list. We’ll continue to have significant investments in CapEx, as you heard. And so, that’s really -- those are the factors that are driving the free cash -- the operating cash flow and free cash flow ranges that we outlined earlier. As it relates to the share returns of capital to shareholders through share repurchases. We still have nearly $1 billion left under our existing Board authorization for share repurchases. As we mentioned in our comments, at the very least, we will buy back throughout the year, but we will continue to be agile and be able to take advantage of market conditions, just like we did in Q4, where, as Bill noted in his remarks, we aggressively bought back almost $300 million worth of shares as we saw some -- what we consider dislocations in price. So, that’s going to -- that will be how we continue throughout the year. We actually like the ability to have that flexibility. And so, it’s something that will obviously continue to be a very critical component of our capital allocation strategy. Operator: Our next question comes from the line of Peter Grom with UBS. Peter Grom: So I wanted to ask about the pricing cadence and the commentary that you’re going to be monitoring the health of the consumer. And you provided a lot of color in the response to both Andrea and Nik’s question. But I guess if you don’t plan to roll back prices, can you maybe just talk about what actions you would be willing to take if the environment were to deteriorate, would that just be pricing at the lower end? And I guess what I’m really trying to understand is if the pricing outlook were to really change at all, how would that impact your ability to achieve your margin targets? Could you lean in more elsewhere, or would it be more difficult to achieve? Bill Newlands: Well, there’s a lot of negative what ifs in the question, which, frankly, we don’t see coming to pass. If you look historically what our beer business has been able to accomplish, we have maintained a very consistent approach to pricing over time, 1% to 2% year after year after year. The last couple of years, as you know, we’ve significantly gone beyond that in an effort to hedge against some of the strong inflationary pressures that all consumer companies have faced. Our belief is we are in a very good position to do our historical 1% to 2% pricing increase. That’s based on a lot of analytics and a lot of elasticity assessments that we do on an ongoing basis. We are very comfortable with that, and we feel like that’s going to be an appropriate play for the course of this fiscal year, which should allow us to do everything we said. I would also note, just as an adjunct to that, one of the things that I said at CAGNY was how strong the Modelo share was in its two strongest markets, which was California and Nevada, where we were double digit. I’m pleased to report that at this point that actually is now in four states, which includes both New Jersey and Texas, which again just continues to show that our growth profile outside of the state of California, it remains a tremendous growth opportunity for our business over the long term and also helps to support what we just talked about relative to our ability to price within our 1% to 2% algorithm. Operator: Our next question comes from the line of Chris Carey with Wells Fargo. Chris Carey: So just two quick ones for me. On the -- Garth, on the beer margin outlook, you gave a lot of great detail. I guess, you’re looking for flat operating margins for the year. Is there any way -- or flattish. Is there any way to frame expectations for gross margin relative to operating margin? And I say that in the context of productivity initiatives, which I suppose can play out in both line items. So I was just curious if you have any comment there. The second observation is Wine and Spirits just delivered what I think is the best operating margin in a few years. And yet the outlook would imply that you’re giving a lot of that back. So is that just conservatism, or is there something just missing in the bridge about some of this nice premiumization, which has really helped the margin structure there? And I sort of asked that in the context of prior margin targets for the Wine and Spirits business in general. So, thanks for those two on Beer margins and Wine and Spirits margins. Garth Hankinson: Yes. So, on the Wine and Spirits margins -- and so again, I’ll reference you to the deck that will be posted to our website after this call. But we’re actually forecasting wine margins to increase by at least 40 basis points on a year-over-year basis. And so, you’ll be able to see that detail on the website. As it relates to operating margin -- or gross profit margin with beer, I mean, all of the headwinds that we’re facing really in beer this coming year will be in gross margin and not below the line. As we said, we’ll continue to -- we’ll continue to effectively manage our marketing and SG&A spend and focus on the highest return and highest priority initiatives, and we’ll manage that effectively. So, the largest drag for us, as we’ve said for the last several months now, it’s going to just be the inflationary impact. Again, we’ll hit through COGS as well as some incremental depreciation throughout the year. Operator: Our next question comes from the line of Nadine Sarwat with Bernstein. Nadine Sarwat: So just coming back to the beer margin point, if I take the midpoint up your beer guidance for top line and operating income, it comes a touch below your initial 38 that I think you discussed. Was there anything in particular that changed to the downside versus your previous commentary, or I mean, is this just a situation of rounding here? And then just a follow-up on the margin point, given the margins of last year and what we’ll be seeing on the back of your guidance for this fiscal year. Should we still be thinking about 39% to 40% as your medium-term margin for the business? And would it be fair to [Technical Difficulty] 25? Garth Hankinson: So, we do apologize because you broke there at the end… Bill Newlands: I think the back end of that was do we expect to get there in fiscal ‘25. You broke up, I apologize, but I think that’s what said. So go ahead. Garth Hankinson: Yes. So I think as you’re working with the numbers that we provided, when we said 38% operating -- approximately 38% operating margin. So that if you kind of look at the various points within our range, you’ll come up with various different outputs as it relates to what the margin will be. So we fully -- we have full conviction that we’re going to deliver operating margins for our beer business on approximately 38%. As it relates to the outlook going forward, we’ve just provided our outlook -- our margin outlook for our beer business for FY24. We’re not providing any guidance for future years. We typically don’t do that at this point. That’s not part of our process. Certainly, the biggest driver again this year that we have for FY24 is again driven predominantly by inflation and the inflation that we’re seeing, which I outlined in my scripts as well as some incremental depreciation. Offsetting that, we’ll continue to take pricing as we have. And as we’ve said earlier, we’ll be -- pricing in our 1% to 2% range. We continue to drive incremental volume, which helps to offset fixed overheads and depreciation as we grow into our expanded footprint, and we’ll continue on with the efficiency drivers that I mentioned as well. So, that’s where we stand for FY24, and we’ll talk about FY25 as we -- closer to the end of the year. Operator: Thank you. Our final question comes from the line of Bryan Spillane with Bank of America. Bryan Spillane: I wanted to touch -- just move back to Wine and Spirits. And maybe Garth, could you talk a little bit about how and SVEDKA and Woodbridge are affecting margin and maybe margin progression there? And I guess I ask in the context of they’re a much larger contributor to volume than they are to revenue. And I guess my assumption is the margins are lower than the average. So just trying to understand, is getting volume stabilization or volume growth in those 2 brands an important component sort of building margins there, or is that not really a big factor? So, really just trying to understand Woodbridge and SVEDKA and kind of the longer-term impact on profitability in Wine and Spirits? Garth Hankinson: Yes. Well, you’re absolutely correct that given the size of those brands that they do have a bit of a drag on our overall margin profile, given the price points in which they compete and therefore, their margin profile, which is below the average profile for the entire business unit. On a positive note, the Wine and Spirits team has pretty aggressive revitalization plans in place for both of those brands so that we can stabilize those brands and continue to outperform the price segments that they participate in. And as such, as we continue to make those efficiency improvements, we certainly -- and revitalize those brands, we expect that we’ll be able to achieve our margin targets as laid out. Operator: Thank you. We have reached the end of our question-and-answer session. I would now like to turn the call back over to Bill Newlands for closing remarks. Bill Newlands: Thanks very much. Fiscal ‘23 was a big year for Constellation Brands. We achieved record net sales and comparable operating income and were recognized for the tenth year as a CPG growth leader, despite some of the most significant inflationary headwinds affecting our company and consumers in recent history. Our beer business outperformed our initial expectations and continued to lead in share gains, growth and margins. Despite some volatility across the year as we lapped distortions in our performance from prior periods and navigating incremental pricing actions beyond our annual algorithm intended to offset cost pressures across the chain. And we delivered many other transformational milestones, including our transition to a single share class structure and other important corporate governance enhancements. The start of our construction activities at our new brewery site in Veracruz, and some additional refinement of our Wine and Spirits portfolio as well as continued progress against the strategy of that business. Lastly, the performance of our business, coupled with our disciplined and balanced capital allocation priorities allowed us to maintain our investment-grade rating, despite the incremental financing associated with the transaction for our transition to a single share price structure to surpass our share repurchases and dividend cash returns goal by over 400 million and continuing to grow our beer production capacity while executing small growth accretive M&A. As we look forward to fiscal ‘24, we remain focused on delivering sustainable growth and value creation for our shareholders through the execution of our annual plan and by continuing to advance our strategic initiatives. And we are confident in our ability to continue building momentum across our bigger portfolio and strong volume growth and targeted pricing actions. We are bullish on the future performance of our Wine and Spirits business as it continues to advance its strategy, and we are committed to our capital allocation priorities and our ESG efforts. Thanks again, everyone, for joining the call. We hope you will choose to enjoy your Cinco de Mayo and Memorial Day celebrations with some of our great products, and we look forward to speaking with all of you in late June on our next quarterly call. Thank you very much, and have a great day. Operator: This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Operator: Greetings, and welcome to Constellation Brands' Third Quarter Full Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Joseph Suarez. Thank you. You may begin. Joseph Suarez: Thank you, Rob. Good morning, all, and Happy New Year. Welcome to Constellation Brands third quarter fiscal 2023 conference call. I'm here this morning with our CEO, Bill Newlands; and our CFO, Garth Hankinson. As a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements made on this call. Before turning the call over to Bill, in line with prior quarters or like last, let me limit everyone to one question per person, which will help us to end our call on time. Thanks in advance, and now here's Bill.. Bill Newlands: Thank you, Joe, and good morning, everyone. Happy New Year to everyone, and welcome to our fiscal third quarter call. I hope you all had a great holiday season and that our products were able to play a role in some of your special moments with your family and friends. Since our last call in October, Constellation Brands reached a notable milestone in its history as a public company. As most of you know, in November, our shareholders approved the elimination of our Class B common stock. With that came the transition of our company to a single class of publicly listed stock, our Class A common stock, which provides our shareholders with equal one share, one vote rights. I want to thank everyone who supported this important enhancement to our company's corporate governance profile and capital structure. We believe that our leadership team now has an even stronger foundation to continue to build shareholder value through the strategic initiatives we adopted and have steadily advanced over the past nearly four years since I assumed the role of CEO. Since fiscal 2020, we agreed to focus on and put in place plans to: number one, continue to build powerful brands that people love; number two, develop consumer-led innovations aligned with emerging trends and consistently shape our portfolio for growth; number three, deploy capital in line with disciplined and balanced priorities; and number four, operate in a way that is good for business and good for the world. I'm pleased to say that we continue to build on a strong track record we have established against all of these strategic initiatives. Starting with number one, building our powerful portfolio of brands. Our beer business, despite a more recent series of headwinds, which we'll address in a few minutes, delivered its sixth consecutive quarter of leading share gains across the entire U.S. beer category in IRI channels that was primarily driven by our two largest brands, Modelo Especial and Corona Extra. In the third quarter, Modelo Especial maintained its position as the top share gainer and is the number one high-end beer brand, and Corona Extra was the third largest share gainer and the number three high-end beer brand. In fact, our beer business delivered 3.5 points of share gains and 54% in dollar sales growth when comparing the 52-week period that ended with our latest fiscal third quarter against the 52-week period that ended with our fiscal 2019. And comparing the same periods, the business contributed the highest dollar sales growth in the category, amounting to over $2.5 billion. In our Wine & Spirits business, our largest higher-end brands Meiomi, Kim Crawford, The Prisoner and High West, all delivered dollar sales growth and share gains in the third quarter. And comparing the 52-week period that ended our latest fiscal third quarter, against the 52-week period that ended our fiscal 2019, these brands achieved 72% dollar sales growth. Moving on to number two, consumer-led innovation and shaping our portfolio for growth. Many of you may be surprised to know that in our beer portfolio, our SKUs introduced over the past three years have driven 20% of the growth delivered by the business since the start of fiscal 2020. An important part of this growth has come from our Modelo, Chelada brands, which have evolved from a niche business to a sizable platform. In fiscal 2023 year-to-date, it has delivered 13.6 million cases of depletions, which already exceeds the brand's total deflations for all of last fiscal year. And in the third quarter, Modelo Chelada Limon y Sal moved up nine spots to become the sixth largest share gaining brand in IRI tracked channels. Beyond the Chelada brands, we continue to build on the opportunities within the Modelo family with a clear focus on maintaining brand investments. We are excited about the national launch of Modelo Oro in March which has surpassed internal and external benchmarks in test markets. In our Wine & Spirits business, innovation has also yielded strong results, increasing its contribution to net sales from 1% in fiscal 2020 to approximately 8% in fiscal '23 year-to-date. This expansion has been primarily driven by extending our largest higher-end brand, once again, Meiomi Kim, The Prisoner and High West. Notably, extensions in The Prisoner brand family, Blindfold, SALDO and Unshackled have contributed significant growth, especially Unshackled, which has grown to be half the size of The Prisoner brand in just four years. In addition, since the beginning of fiscal 2020, we have added five brands through acquisitions, like Bronco Wines, My Favorite Neighbor, Empathy Wines, Halpern and Kings and Austin Cocktails, all of which are in the higher-end segments of the wines and spirits categories that are contributing to growth. And we divested 36 brands, the vast majority of which were in the mainstream segment, which has mainly been in decline due to consumer-led premiumization trends. Given this free shaping of our portfolio, including the recent additional divestiture 62% of net sales in fiscal '23 year-to-date were from our higher-end brands. This is a dramatic shift from the 34% higher-end brands represented at the end of fiscal '19. Now turning to number three, capital allocation. In fiscal 2020, we introduced a thoughtfully structured approach designed to consistently deploy capital with discipline and balance. We made maintaining our investment-grade credit rating, our top capital allocation priority and reduced our net leverage ratio, excluding Canopy equity and earnings, from 4.5x at the end of fiscal '19 to 3x by the end of the second quarter of this fiscal year. This was partly driven by a $3.2 billion reduction in our debt levels and partly by strong earnings growth in our beer business. And then in the third quarter, these efforts gave us the flexibility to both accommodate the $1.5 billion financing for the elimination of our Class B shares and to maintain our investment-grade rating. As our net leverage ratio remained in line with our prior 3.5x target. However, we recently updated that set target to 3x, given our ability to previously achieve that target and the continued strong cash flow generation capabilities of our businesses. Our second priority became delivering cash returns to our shareholders, and we set a goal to return $5 billion in dividends and buybacks between fiscal 2020 and '23. We virtually completed that goal ahead of schedule in the third quarter and we're now on track to exceed the $5 billion target with the fourth quarter dividend payment announced today. As to our third priority, we sought to advance growing capacity expansions to support the strong growth in our beer business. Since the start of fiscal 2020, we added approximately 9 million hectoliters of capacity through growth investments and another 2 million hectoliters through brewery optimization and productivity initiatives. We are also on track to further diversify our production footprint with the development of our new brewery in Veracruz, where we have recently broken ground. And last in our capital allocation priorities was M&A, and since the start of fiscal '20, we have judiciously deployed excess cash through acquisitions with a strict focus on small gap filling higher-end brands. And the key strategic acquisitions we have executed over the last nearly four years are delivering top line growth. All in, we believe we have unquestionably upheld our capital allocation priorities and have even exceeded some of the associated targets we set out to achieve. Moving on to strategic initiative number four, operate in a way that is good for business and good for the world by advancing ESG goals. Our ambitions are to protect the environment and natural resources by serving as a model for water stewardship in our industry while reducing greenhouse gas emissions, to champion the professional development and advancement of women within our company, industry and communities, to enhance the economic development and prosperity in disadvantaged communities and to promote responsible beverage alcohol consumption. While we still have much work to do, I am proud to say we are making good progress towards our goals. To that end, in the third quarter, we released our 2022 ESG Impact Report, which included several enhancements on the information shared on these important topics and our work towards our targets, including, for the first time, references aligned to the Sustainability Accounting Standards Board framework and taking into consideration recommendations from the task force on climate-related financial disclosures. So as with our capital allocation priorities, we have been consistently working to deliver against our strategic initiatives. Net, we have done we have said what we do, and we have done what we said. And despite current inflationary pressures and the risk of recessionary headwinds we remain confident in our ability to continue to advance and create value through these initiatives. And on that note, let's move on to a more fulsome discussion of our performance in the third quarter. Depletion growth for our beer business decelerated to 5.7%, which, as I mentioned earlier, was largely due to a recent series of headwinds that developed towards the latter part of the quarter. First, as we shared on our last call, we decided to introduce all pricing changes above our usual algorithm due to cost pressures across the chain, and historically, the impact of these types of notable pricing actions take a few months to settle in. Second, distribution growth is returning to more normalized levels after lapping a softer summer period last year when we were managing supply constraints. That said, distribution growth remains at exceptionally healthy levels as well as aligned with our full year expectations. And third, some of these headwinds were particularly accentuated in a few key regions for our brands, such as California, where we lapped double-digit depletion growth rates and better weather in November of last year as well as more favorable economic conditions. All of that said, our beer business continues to perform strongly relative to the wider market and to resonate with consumers who continue to shift to higher-end brands. In IRI channels, we gained 1.5 points across the entire category and 2.3 points in the higher-end segment in the third quarter, which is higher, let me repeat that, which is higher than the share gains in the same quarter last fiscal year. And when looking at depletions fiscal '23 year-to-date, our beer business achieved growth of 7.8%, which continues to be in line with our annual expectations. Importantly, based on the prior activity we have seen in retail, as they adjust to the continued inflationary environment, we expect trends to return to more historical rates over the next few months. Now shifting to the performance of our beer brands. Modelo Especial delivered depletion growth of 4.4% in the third quarter lapping a tough 13.2% depletion growth comparison in the corresponding period of the last fiscal year. That said, the brand has achieved depletion growth of 9.9% over fiscal '23 year-to-date. In the recent quarter, it continued to strengthen its position in the five states where it is already the number one beer brand in dollar sales, delivering another approximately 0.2 points in share gains. Importantly, in the other 39 states tracked by IRI data, Modelo Especial delivered more than 4x the share gains at over 0.8 points. More broadly, Modelo Especial's depletion growth in its secondary markets outpaced the growth in its top five states by over 10 points. As such, we continue to see significant incremental opportunities to maintain the momentum of Modelo Especial, particularly through distribution gains in the states where it is under represented. Corona Extra delivered depletion growth of 1.3% in the third quarter and 4% in fiscal '23 year-to-date. As noted earlier, the brand has maintained its momentum as the number three share gainer in track channels. We continue to invest in the growth of Corona Extra through a thoughtful and authentic evolution of the brand's market such as the augmented reality addition to our O'Tannenpalm campaign, which is one of the more enduring holiday themed commercials running for over 30 years now. And we continue to see growth potential for Corona Extra with younger legal drinking age and multicultural consumers. Pacifico's depletion growth accelerated in the third quarter to 40.7%. And over fiscal '23, year-to-date, its depletion growth was 32.9%. The brand remains a top 10 share gainer in tracked channels in the third quarter, mainly supported by its growing footprint in states like California, Nevada, Utah, Colorado and Arizona. We continue to see fantastic growth runway for Pacifico as one of our new wave brands with significant distribution potential relative to Modelo and even more so relative to Corona Extra. Particularly as the brand also continues to build momentum by shifting East in the U.S., building on the 26% depletion growth delivered in our Eastern business unit in the third quarter. Lastly, our Modelo Chelada brands achieved depletion growth of 44% in the third quarter and 48% over fiscal '23 year-to-date. Our Modelo Chelada brand remained the number one set in the Chelada space, and the brands gained nearly half a share point across all U.S. beer and track channels. For perspective, that is as much as Corona Extra's gain. In fact, these gains were largely driven by innovations launched this fiscal year, including Naranja Picosa flavor, the Limon y Sal 12 ounce 12 pack, which is a top 10 new packaged SKU and our new variety pack, which is among the top 15 new brands. We continue to expect significant growth from the Modelo Chelada brands as we invest in marketing to the general market consumer to broaden the demographic appeal for this product. All in, the strong demand for our brands in the third quarter supported a net sales increase of approximately 8% for our beer business. And despite the impact of inflationary headwinds on operating income, we were able to maintain operating margin at 37.5%. This gives us the confidence to once again raise guidance for our beer business this fiscal year lifting the low end of our growth outlook. We now expect to achieve 9% to 10% net sales growth and 4% to 5% operating income growth for fiscal '23. Moving on to Wine & Spirits. Our Wine & Spirits business continues to advance its vision to be the high-end market leader. As noted earlier, our largest higher-end brands delivered strong performance relative to their categories in the third quarter. In our Aspira portfolio, which includes our fine wine and craft spirits brands, over the third quarter in track channels, The Prisoner brands grew dollar sales by 4.3%, while the fine wine segment contracted by 5.7%. And High West grew dollar sales by 22%, while high-end spirits segment grew by only 3.4% In our premium and mainstream Wine & Spirits portfolio, which we refer to as Ignite, both Meiomi and Kim Crawford gained share in the U.S. wine category. Depletions for our Wine & Spirits business declined by 5.5% in the third quarter, mainly driven by continued headwinds based across our mainstream brands. However, our Aspira portfolio delivered strong performance with 8.5% depletion growth in the quarter. And in fiscal '23 year-to-date, our Aspira portfolio has now achieved an overall 6.3% increase in depletions supported by strong double-digit depletion growth for The Prisoner and High West. Among Ignite brands, Meiomi and Kim Crawford have also delivered solid depletion growth in fiscal '23 year-to-date, supporting an overall 2.3% increase in depletions for our premium line portfolio. Our Wine & Spirits business also continued to expand its global omnichannel footprint, advancing its growth in direct-to-consumer, 3-tier e-commerce channels as well as international markets. Wine & Spirits DTC net sales grew 23% in the third quarter, and we continue to perform particularly well in 3-tier e-commerce which delivered dollar sales growth 9 points above the competition. These results were underpinned by our strategic DTC investments in both hospitality through facility upgrades and talent development and our own e-commerce website platforms as well as our continued leadership in 3 Tier e-commerce through marketing innovations like launching video ads on Instacart. And a strategic focus on major omnichannel national accounts, third-party marketplaces and digitally native retailers like Amazon, where we were the number one overall supplier and number one growth supplier in higher-end wine in the third quarter. International markets accounted for 9% of the total net sales in the Wine & Spirits business in the third quarter as our strategically focused approach continued to target select metropolitan markets, including London, Tokyo, Seoul, Sydney, Mexico City, Zurich and Toronto with some of our most renowned premium and fine wine brands like The Prisoner, the Schrader as well as more recently acquired brands like Lingua Franca and My Favorite Neighbor. And with our craft spirits portfolio, which includes brands like Casa Noble and the CAMPO high-end tequilas, that delivered international shipments 5x greater than the third quarter of the prior year. We are also pleased that our efforts to establish a leading global higher-end Wine & Spirits portfolio are gaining recognition with several of our brands receiving remarkable accolades including Schrader Cellars winning its 37th 100-point score and its Double Diamond brand being recognized by The Wine Spectator as its number one wine of 2022. Our To Kalon Vineyard was being recognized again as the top vineyard in North America for the fourth consecutive year among top vineyards in the world. And I'm pleased to report that our To Kalon Vineyard has now also is certified as organic, expanding the appeal of its wines to a broader set of consumers and adding to its differentiation. And in our spirits portfolio, our recently launched Nelson Brothers Bourbon Reserve was ranked among Whiskey Advocate's top 10 most exciting whiskeys of 2022. So all in, our Wine & Spirits business continues to make meaningful progress on its transformation. And while net sales and operating margins, net of recent divestiture, were slightly lower relative to the third quarter of last fiscal year due to volume shifts from shipment timing only being partially offset by mix and pricing benefits we did see a significant sequential uplift in operating margins of 55 basis points relative to the second quarter of this fiscal year. This gives us confidence to reaffirm our fiscal '23 guidance for our Wine & Spirits business of stable to 2% lower net sales and 3% to 5% operating income growth, which we are providing against the fiscal '22 baseline adjusted for the recent divestiture. Looking further ahead, we are also confident that over the medium term, both our beer business and our Wine & Spirits business remain well placed to deliver strong growth and best-in-class operating margins. That said, given continued inflationary pressures and the potential impact of recessionary environment, we remain mindful of balancing the momentum of our brands against near-term cost challenges. To that end, based on our current expectations of the pressures that the consumer will continue to face in the near term, we are giving even more careful consideration to our pricing actions for fiscal '24. In particular, we currently expect pricing actions for our beer business to be more muted in fiscal '24 as our pricing actions in the current fiscal year were ultimately above our medium-term algorithm. While input costs remain at historically elevated prices we strongly believe that additional consideration in our approach to pricing in fiscal '24 is warranted to sustain healthy growth for our brands. In addition, while some input costs are below the peaks from earlier this fiscal year, we now anticipate inflation to remain above historical trends in the high-end single-digit range for fiscal '24. As always, we will continue with our disciplined approach to manage these evolving conditions through cost-saving initiatives. But these persistent inflationary headwinds will be compounding on the double-digit cost uplift we have faced in fiscal '23. As such, we now expect operating margins for our beer business in fiscal '24 to be more in line with our anticipated margin structure for this fiscal year, and therefore, below our stated 39% to 40% medium-term range. We are still refining our outlook for '24 and will provide more detailed guidance at our next earnings call, but we wanted to share some context today now that our annual planning process is underway. With all that said, let me be clear. Our beer business continues to have best-in-class operating margins and our Wine & Spirits business continues to make progress toward achieving that same differentiation. We are also confident that over the medium term, our beer business remains well positioned to deliver leading operating margins, supported by the sustained momentum of our core Modelo Especial and Corona Extra brands, the significant opportunity being captured by our Pacifico, Modelo Chelada brands. The incremental upside from our broader existing portfolio and the continued development of our innovation lineup particularly from exciting imminent additions like Modelo Oro and we continue to expect our Wine & Spirits business to make progress on its operating margins supported by continuing to pursue the exciting runway for growth of our higher-end brands and ensuring these brands represent an even greater portion of our mix over time, enhancing the performance of our mainstream portfolio through a greater focus on brands and initiatives with higher returns, including through relevant and innovative products and growing our omni-channel and international leadership particularly as an incremental opportunity for higher-end growth. Now before I conclude, I wish to quickly touch on Canopy. We remain supporter of Canopy sellers to create an exchangeable share structure designed to support the consolidation of all its U.S. cannabis assets into a single avenue. And to that end, our intention continues to be to transition our existing common share ownership interest in Canopy Growth into new exchangeable shares once its shareholders approve this transaction. We believe that the conversion of our ownership interest will maintain our ability to realize the potential upside of our investment in Canopy. At the same time this transaction and the surrender of our warrants are expected to eliminate the impact to our equity and earnings, mitigate risk to our organization and further reinforce our intent to not deploy additional investment in Canopy in line with our capital allocation priorities. In closing, I'd like to reiterate three main takeaways today. First, nearly four years ago we committed to a series of strategic initiatives aimed at delivering profitable growth and shareholder value. And I'm pleased to say that we are delivering against those initiatives and in many cases even exceeding the goals we set out to achieve. Second, our third quarter results demonstrate that we continue to execute against these strategic initiatives and that our company remains in a strong position to deliver best-in-class results. Despite the headwinds in the quarter due to macroeconomic pressures and tough comps versus prior year, the strong performance of our beer business has put it on track to deliver better-than-expected results in fiscal '23. And the transformation of our Wine & Spirits business is also yielding results. And third, we remain confident we will continue to build on our track record of solid growth and value creation through our strategic initiatives. And with that, I turn the call over to Garth. Garth Hankinson: Thank you, Bill, and good morning, everyone. As Bill mentioned, we delivered another set of solid results in the third quarter and continue to make progress against our operating plans and strategic initiatives. Our beer business achieved high single-digit net sales growth and continue to deliver best-in-class operating margins. Our Wine & Spirits business made additional progress against its strategy with an even more premiumized portfolio further aligned with consumer trends following our recently completed divestiture. Additionally, we generated strong cash flow results and with yesterday's declared dividend to be paid in February, we are on track to exceed our stated $5 billion goal of returning cash to shareholders in the form of dividends and share repurchases between fiscal '20 and fiscal '23. I will now review our Q3 performance and full year outlook in more detail, where I will generally focus on comparable basis financial results. Starting with our beer business. Net sales increased 8%, primarily driven by higher average price increases and solid demand across our portfolio. Q3 shipment volumes were up 3% reflecting a difficult volume lap given the focus of replenishing product inventories in the same period last year. From a depletions perspective, we achieved growth in the quarter of approximately 6%, driven by the demand of our Modelo family of products, including the Modelo Especial and Modelo Chelada brand as well as double-digit growth from Pacifico. As Bill noted, depletions decelerated sequentially from Q2 to Q3. This was primarily due to: number one, incremental fall pricing that, as expected, will put us above our targeted annual average increase. Notably the impact of our fall increases has been heightened by additional pricing actions across the value chain. That said, we expect the impact of incremental pricing will settle over the coming months as we have seen in prior similar circumstances. Number two, relatively lower distribution growth in Q3 versus Q2, where we lapped a softer prior year period when we were managing supply constraints. And while we are seeing distribution growth return to normalized levels, it remains aligned with our full year expectations. Importantly, it is worth noting that Q3 distribution growth remained well above the levels we achieved in Q4 last year and Q1 of this year. And number three, as Bill also referenced in the third quarter, particularly in the month of November, we lapped multiple tailwinds from last year such as double-digit depletion growth rates in key regions like California, which benefited from periods of warmer weather and a stronger macroeconomic environment. All of that said, we expect depletion trends to continue to normalize as we move into fiscal 2024, and we remain confident in our fiscal year expectations. Selling days in the quarter were flat year-over-year, but please note that in Q4, there will be one less selling day. Operating income for the beer business decreased 2% and operating margins declined by 380 basis points to 38%. As expected, operating income and operating margins were negatively affected by ongoing inflationary pressures across raw materials and packaging, particularly as more favorable hedges rolled off. Increased logistics expenses related to higher fuel and freight costs, incremental operating costs and increased depreciation as a result of our brewery capacity expansions, and increased marketing spend, particularly from our media investments in sports sponsorships with NFL, NCAA Football, Major League Baseball, the NBA and the NHL. Marketing as a percent of net sales increased 160 basis points to 9.6% in Q3. For fiscal '23, we continue to expect that marketing as a percent of net sales will be in the 9% to 10%. More broadly, given the strong top line growth of our beer business year-to-date, we now anticipate it will grow net sales between 9% to 10% and operating income between 4% to 5% for the full fiscal year. This still implies an operating margin of approximately 38% for fiscal 2023. As expected benefits from our 2% to 3% average pricing increase for the full year and our cost-saving efforts will be more than offset by the same headwinds that have affected our margins year-to-date. I'd like to take a moment to reiterate some of the points Bill made earlier regarding fiscal '24. As mentioned, we are anticipating our beer business margins to be more in line with our anticipated margin for this fiscal year, and therefore, below our stated medium-term target range of 39% to 40%. This is driven by the fact that input costs remain at historically elevated levels due to ongoing inflationary pressures. As we have shared in some of our prior calls, we hedged about 10% of our beer business costs to help reduce volatility in the P&L. However, our commodity hedging program is managed on a multiyear rolling basis. So we currently do not anticipate our blended hedge rates to capture the favorability of recent declines in certain commodity prices until the second half of next fiscal year. In addition while prices have declined from their peaks earlier this year for commodities like aluminum and natural gas, which are part of our can and glass cost, they still remain above pre-pandemic levels. Beyond our hedging program, most of our beer business input costs have a greater exposure to inflationary pressures, including raw materials, such as wood pallets, steel crowns and cartons. The majority of these input costs are subject to contractual agreements that tend to reflect negotiated prices that are based on existing inflationary conditions. So as we move forward with our annual planning and supplier cost determination process, we will develop a clearer view of these contractual prices and on the resulting margin expectations. Against that backdrop, with these processes now underway, we have greater visibility into the high single-digit cost segments that will continue to build off the double digit unfavorable cost outlook that our beer business faced in fiscal '23. In addition, we continue to see ongoing macroeconomic pressures on the consumer, which are leading us to plan to take more subdued pricing actions across our beer portfolio in fiscal '24. That said, we expect a number of tailwinds that will partially offset some of these headwinds, including the continued momentum of our core brands, capitalizing on opportunities with emerging brands such as Pacifico and Modelo Chelada's, winning with new and future innovation such as Modelo or Modelo Oro and through our consistent and disciplined cost savings actions, nevertheless, as Bill mentioned, we will continue to refine our outlook for next year, and we will provide detailed guidance during our Q4 earnings call. That said, it is important to reiterate that our expected fiscal '23 and fiscal '24 operating margins remained best in class. And in fact, when considering our fiscal '20 through our currently anticipated fiscal '24 margins, we expect the average operating margin for that 5-year period to remain within our medium-term algorithm of 39% to 40%. Now shifting to Wine & Spirits. As a reminder, during our recently concluded third quarter, we divested a series of brands from our Wine portfolio. As such, third quarter of fiscal '22, included approximately $17 million of net sales and $11 million of gross profit less marketing, that are no longer part of the Wine & Spirits segment results. When presenting today's results, I will be discussing our top line results on an organic basis, excluding the contribution from those divested brands in the preceding periods. Starting with organic net sales. The Wine & Spirits business decreased 1%, primarily driven by a 13% decrease in shipments, partially offset by a favorable product mix, which both related to consumer-led premiumization and mix improvements of our portfolio. From a depletions perspective, while the Wine & Spirits business saw a decline of approximately 6% on an organic basis in Q3 as Bill noted earlier, our higher-end brand delivered strong performance with our Aspira portfolio, which includes our fine wine and craft spirits brands, delivering depletion growth of 9%, driven by growth in our Prisoner Wine and High West brands. Meanwhile, our Ignite portfolio, which includes our mainstream and premium Wine & Spirits brands primarily faced headwinds from our mainstream brands, which was down 8%. That said, in tracked channels, our largest higher-end brands continue to outperform their corresponding segments, and our peak premium brands portfolio actually gained share in the category with particularly strong performance from Meiomi and Kim Crawford in both volume and dollar sales growth. Moving on to Wine & Spirits operating income and operating margins. Wine & Spirits operating income declined by 7%, partly as a result of the divestiture and operating margin decreased 60 basis points to 24.8%. The decrease in operating margins was driven by higher transportation costs, including ocean freight shipping, unfavorable costs from higher drivers largely due to inflation and increased general and administrative expenses due to higher compensation and benefits primarily related to higher headcount from our continued strategic focus on expanding into direct-to-consumer channels and higher-end brands in our Aspira portfolio. For full year fiscal '23, we remain confident in our previously stated outlook for our Wine & Spirits business. We expect fiscal '23 organic net sales decline of 0% to 2% and operating income to increase 3% to 5% implying a full year operating margin of about 24%. Looking ahead to fiscal '24, we expect our Wine & Spirits business to continue to make progress on its operating margin. We believe our Wine & Spirits business is positioned to further improve its operating margins through growth of our higher-end brands, bolster performance from our mainstream portfolio through high-return brand initiatives such as innovation, and expansion of our omnichannel and international footprint. As I mentioned earlier, we are currently working through our annual planning process and we'll provide a more detailed fiscal '24 outlook during our Q4 earnings call. Now let's proceed with the rest of the P&L. Corporate expenses came in at approximately $75 million, up 70% versus Q3 last year. This increase in corporate expense was primarily impacted by costs associated with increased compensation and benefits, primarily related to a third quarter fiscal '22 reversal of stock-based compensation and third-party services related to our ongoing investments in our digital business acceleration initiative. We now expect our total corporate spend to be between $290 million and $300 million for the full year, mainly driven by the incremental costs in Q3. Interest expense for the quarter was up 12%. Also, as we noted in our release, following the completion of the reclassification of our Class B common stock, we now expect interest expense for fiscal '23 to be between $390 million and $400 million. This includes the interest expense associated with the funding of the $1.5 billion cash consideration which is expected to be $80 million to $90 million on an annual basis based on current market rates. Our Q3 comparable basis effective tax rate, excluding Canopy equity and earnings, came in at 18.8% versus 14% in Q3 last year. The effective tax rate increased mostly due to the change in stock-based compensation benefits. As a result of these updates to our outlook, the increased interest expense due to the reclassification bonds, adjustments relating to our most recent divestiture in our Wine & Spirits business and increased corporate expenses that were only partially offset by the increased expectations for our beer business. We now expect comparable EPS guidance to be in the $11 to $11.20 range, which represents a $0.20 decrease to the bottom end and a $0.40 decrease at the top end of our prior guidance range. Moving to free cash flow, which we define as net cash provided by operating activities less CapEx. We generated free cash flow of $1.6 billion for the nine months of fiscal '23 reflecting strong operating cash flow partially offset by a 14% increase in CapEx investments as we continue to support the growth of our beer business through our brewery capacity expansion plans. And on that note, to echo Bill, we are excited by the progress we have made with our new sites in Veracruz in which we recently broke ground. Our fiscal '23 free cash flow is now expected to be in the range of $1.5 billion to $1.6 billion and CapEx is now expected to be between $1.1 billion and $1.2 billion. Operating cash flow for fiscal '23 remains unchanged and is expected to be between $2.6 billion and $2.8 billion. Related to our uses of these cash flows, as we recently noted in December, our capital allocation priorities moving forward following the reclassification remain fundamentally aligned with the priorities we introduced in fiscal '20. To achieve a disciplined and balanced and thoughtful approach to support growth and value creation. Our recently updated capital allocation priorities are as follows: first, we remain committed to our investment-grade rating and to targeting dividend growth in line with earnings as key elements of a disciplined financial foundation. We ended the third quarter with a net leverage ratio of approximately 3.5x when factoring in the financing for the cash payment associated with our recent transition to a single-class stock structure and excluding Canopy equity earnings. That said, we have set a target net leverage ratio on that same basis of approximately 3x, which we are confident we can return to. Another important element of our commitment to a disciplined financial foundation is targeting an approximately 30% dividend and payout ratio. Second, we will continue to balance investments to support the growth of our business and deliver additional returns to shareholders through share repurchases. As we look ahead, we continue to expect adding another 25 million hectoliters to 30 million hectoliters of brewing capacity between fiscal 2023 and fiscal 2026. This will be supported by $5 billion to $5.5 billion of investment over that same period. We are developing this capacity through a series of expansion waves which is consistent with the modular approach we have adopted to maintain capital expenditure discipline and flexibility. We remain committed to executing share repurchases targeted to at least cover dilution. While we also have approximately $1.2 billion of our repurchase capacity still under our current board authorization and plan to remain opportunistic, particularly since we achieved incremental cash flow flexibility. And third, we may deploy excess cash to smaller acquisitions. Again, we intend to remain disciplined in our pursuit of any M&A opportunities and we'll continue to pursue transactions that we believe fulfill one or more of the following characteristics: are consumer led, they deliver growth momentum, providing compelling returns, fill portfolio gaps, and offer synergistic benefits. Lastly, on Canopy. As it announced in October, Canopy plans to consolidate all of its U.S. cannabis assets into a single entity, Canopy USA. This U.S. holding company and new exchangeable share structure is designed to enable Canopy USA to trigger full ownership of Canopy's U.S. cannabis investments and capitalize on the U.S. cannabis market opportunities. Assuming the completion of this transaction and approval by Canopy shareholders of a charter amendment we intend to transition our existing common share ownership interest in Canopy into new exchangeable shares, which is intended to protect Constellation shareholder value while retaining an interest in Canopy through nonvoting and nonparticipating shares. This share ownership transition and the surrender of our Canopy warrants is aligned with our focus on core beer and Wine & Spirits businesses and capital allocation priorities. As a reminder, until this transaction is completed and we convert our holdings into exchangeable shares, Canopy will still be reported within our P&L consistent with past quarters. In closing, we continue to demonstrate strong execution in growing our core business and investments to enhance our portfolio of industry-leading brands. As we approach the end of the fiscal year, we remain committed to delivering against our stated goals to drive sustainable and profitable growth and build shareholder value. And with that, Bill and I are happy to take your questions. Operator: Thank you. At this time, we will be conducting a question-and-answer session [Operator Instructions] Our first question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question. Lauren Lieberman: Thanks. Good morning. When you walk through the drivers of the change in trend for depletions that you saw towards the end of the quarter, one sort of mention was a comparison on macroeconomic trend versus the prior year and then also your comments on taking sort of more muted pricing as you look into '24. So I'd love if you could just spend a little bit more time talking about what you're seeing from your various kind of core consumer groups, it feels like I know you pointed out some share gain continues. But when we look at some of your brands relative to other high-end brands, core beer brands, not Seltzer, it does look like there's underperformance, it's specific to your brands. So just any further diagnostic you may have done would be really helpful to hear about? And then also, I wasn't entirely clear on why the slower CapEx spend, I know you just went through it across at the very end of your comments, but I was hoping you could just reframe that because I admittedly missed why is it $200 million lower this year? Bill Newlands: Sure. So relative, Lauren, to the depletion trend scenario, we're still seeing in our -- all of our assessment and research suggests that we continue to have very strong support for our brands among our core Hispanic base as well as growing trends amongst the non-Hispanic community. I think a great example of that shows itself in that we actually had an increase in our share gain quarter-on-quarter from last year which reflects very well. Certainly, some of what we saw at the latter part of this quarter was driven by a couple of things. One is many businesses, including ours, took additional pricing over what we had planned. And that caused an overall softness in the market, particularly in the state of California. It wasn't limited to us. And frankly, that's not an unusual reaction. We've seen that many times before. Frankly, what we were very pleased about as we then look into December and to see if this thing is beginning to go back to some normalcy, we see that it has been, we saw a 7.5% swing to the upside in dollars versus where it was in November and that compares to a category swing of 4.5%. So again, we saw a significant improvement in the market that was primarily the cause of a bit of deceleration in our depletion performance as we got into December, and we continue to gain share in that overall mix of swing. So we're not -- we -- this is not an unusual event. It happens virtually every time you see significant pricing action taken and the fact that we continue to gain share at the clip that we are gives us great confidence going forward and the strength of the brands overall. Garth, anything you want to say. Garth Hankinson: Yes, Lauren, just on the CapEx, it's important to note that we continue to progress with our expansion as planned. As we stated in the remarks, we've added 11 million hectoliters of capacity over the last several years, $9 million in growth, sort of $2 million through productivity initiatives. We are on track with our expansions at both Nava and Obregon. And as we mentioned, we've recently broken ground in Veracruz. So the reduction in CapEx for this year is not necessarily abnormal as we move through the year. It really has more to reflect the timing of when payments will be made and less to do with progress. Operator: Our next question comes from the line of Nik Modi with RBC Capital Markets. Nik Modi: Yes, good morning, everyone. Bill, I was hoping maybe you could talk about what's actually happening with some of the pricing as it goes through the supply chain? Certainly, we've picked up some commentary within the trade that pricing was taken on top of what you actually took in the market. And I'm just curious what the state of that is, if it's starting to get unwound? And have you seen any implication of that in some of the more recent weeks? Bill Newlands: Yes. You bet, Nik. You're absolutely right. One of the things that we saw that occurred after our pricing increase is that other players within the chain took more price on top of what our pricing increase was. And frankly, this often happens as well. The Board tends to happen, and we've already started to see it in certain some markets is that, that moderates over time as well because an attempt is made to see what the consumer is ready to accept. And if we find a spot that's a bit more than they are ready to accept you see some moderation in that increase. You've already started to see that with some critical change in the state of California, which probably relates to my answer to Lauren a moment ago, which is why you saw the trends in December change quite a bit. So you're correct there was a lot more and it piled on, if you will, once it was out of us and into further down the chain, more was taken and as we often see that goes higher early and then moderates over time. Operator: Our next question is from Nadine Sarwat with Bernstein. Nadine Sarwat: I just want to stick with depletions here. I know you gave those explanations in your prepared remarks, but I have two follow-ups. So the first is that the reported depletion still meaningfully lag the trends in the Nielsen track channels, which I would have assumed would reflect a number of the factors that you called out, so could you help us understand this gap? And then the second question is, I know you've mentioned that you have confidence that your depletions would return to those normal levels. But we are still seeing weakness in the December Nielsen trends. So could you provide some color as to what gives you that confidence? And what are your quarter-to-date depletions at the moment? Bill Newlands: Sure. So let's start with the question of track channels. One of the things that we have historically found is that you're in the roughly -- there's roughly 3-point delta, we use IRI, I realize you just said Nielsen, we use IRI. There's roughly a 3-point delta historically between the growth that you see in the tracked channels and the depletion rates. Interestingly, that got massively bigger when you're in the middle of the pandemic because the percentage of business that went through the off-premise trade increased substantially. That has now come back to somewhat of a more normalized level as you get to a little bit better positioned in the on-premise, not quite back to where it was, but it's directionally. So that is some of what you are seeing is you're back to a more traditional split between those individual things. Relative to -- and I quoted to the California, some other states are seeing a bit different. Texas on the other was also a market that was somewhat softer post price increase, and that one has not rebounded just yet. But that, again, is not unusual either. It's a little bit of a different channel mix than what you see in the state of California where you often see a more faster response to whatever impact pricing increases take. So this, in our judgment is all part of a normal process of when pricing actions are taken. It takes a few months for it to all work its way through the system. Relative to the depletes, we don't have the final numbers in. As you would expect, we're only in day five of the New Year and obviously, it included the New Year, which makes the reporting a little bit behind. What I would say is that we're comfortable with where we think the summer is going to land. Otherwise, we wouldn't have raised our guidance. Operator: Our next question is from Kaumil Gajrawala with Credit Suisse. Please proceed with your question. Kaumil Gajrawala: Hi, guys. Not to belabor the pricing conversation, but when you mentioned 2024 pricing to be more muted, could you maybe just talk a little bit more about what that means? And then Garth, when we think about the share price, not just the movement today but perhaps more recently and perhaps even the fact that it's been -- the share has been flat for a period of time. Does that change how you're thinking about share recalls? Bill Newlands: Sure, I'll go for it. So relative to 2024 pricing, as we stated in the last quarterly call, we were going to go above what our expectations had been. And that reflects, obviously, in the October increase that has taken us above our traditional 1% to 2% guidelines. What we're suggesting relative to 2024 is that it's going to be much more in line with what our historical trend has been, which is 1% to 2%. We would not expect it to go beyond the top end of the range as we did in this particular year and late in this fiscal year. Garth Hankinson: Yes, Kaumil on the share repurchase, I just want to make sure it's clear that we haven't necessarily deprioritized share repurchase activity. As we mentioned, we have $1.2 billion worth of capacity under our current board authorization. In the near term, we think that it's more important to focus on getting our leverage ratio back down close to 3%. That being said, we do have the flexibility to be able to take advantage of weakness in the marketplace, as we said in our prepared remarks and be opportunistic. So it's absolutely something that we have the flexibility and optionality to execute against. Operator: Our next question is from Bonnie Herzog with Goldman Sachs. Please proceed with your question. Bonnie Herzog: All right, thank you. Hi, everyone. Just maybe first, a quick clarification on your pricing. I'm wondering if you're still expecting to be in your 2% to 3% pricing guidance range for the full year since I guess that would imply only around 1% pricing in Q4? And then, I guess, a question on your guidance, just in terms of your beer guidance, you raised your full year sales and op income growth, but it does imply shipments will be down maybe as much as high single digits in Q4. So I'm aware you're lapping the distributor inventory build from last year, but just trying to reconcile this with some of the key initiatives you have out such as the rollout of Modelo Oro that's shipping now. So maybe if you could touch on that? And then just finally, I wanted to clarify if you expect your full year shipments and depletions to be broadly in line with each other? Thanks. Bill Newlands: Sure. We do expect to be slightly above our 2% to 3% that we quoted in the last quarter, when all is said and done for the year. We also -- you should also recognize that mix is going to be higher and in large part because of the significant increase in the Chelada business, which is mix accretive in the overall portfolio. Garth, do you want to touch on the other piece? Garth Hankinson: Yes. Just in Q4, right? I mean as a reminder Bonnie, as we said throughout the year, you need to focus on sort of full year performance as that we're going to -- it was going to be sort of uneven or choppy results throughout the year, given the fact that we had the difficult overlaps as we were in the first half of last year dealing with some production-related issues in the second half of the year, we were building back inventories. So Q4 will certainly be muted this year versus what it was last year as last year was sort of artificially high due to that, those rebuilding efforts. Operator: Our next question is from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: Hi guys, good morning. So I know we spent a lot of time on depletions already, but just a couple more specific follow-ups to drive a finer point on it. A, just as we think about the deceleration we've seen in nontrack channels, the untracked channels the last couple of quarters here. I wanted to get a little more detail on your perspective on what's occurring there. Is it more just look, there's less momentum from an on-premise recovery post-COVID as you cycle the more normalized post-COVID comps, might there be more of a macro slowdown on the untracked off-premise channels as theoretically volume shift to track channels in areas like Bodegas, et cetera, just sort of break down that nontracked channel mix a bit in terms of talking about on-premise versus the untracked off-premise. So sort of extended a bit beyond the answer to Nadine's question? And then Modelo does look like it's disproportionately slowed. Just to check on that, it seems like your mindset is more that it's related to some of the weakness in California, some of the pricing impact, less sort of more temporary factors. Is any of that sort of related to more longer-term factors? Maybe it's at a much larger base and you're having -- you're not going to see as much growth? How do you sort of think about the Modelo brand and its performance recently? And then last, sorry for the multipart question, but price/mix was obviously very strong in the quarter. Some of that is higher year-over-year pricing. But presumably, some of that is mix also. So are you seeing a big shift to smaller packages, might that also be part of the reason for some of the depletion weakness. So I just wanted to get a little more clarity on those points as it related to depletions? Thanks. Bill Newlands: Sure. Let's try to tackle those one at a time. Relative to Modelo, well, importantly, we are still seeing share gains in our five biggest markets. I think that's really important. But we're seeing several times those gains in the other markets with track channels, which we see as we've said many times before, a tremendous upside opportunity, this brand is still under shared, if you will, in terms of its household penetration compared to Corona Extra as an example. So there's just a lot of runway for growth for Modelo, and we remain very, very comfortable and confident in that brand's ability to continue to accelerate. Relative to the nontracked channels, we have continued to see on-premise get closer to where it had been, but it's still not quite to where it was before the pandemic, one. Two, it always takes a bit more time in some of the smaller Bodega style nontrack channels for pricing actions to work their way through. We've seen that happen before. And obviously, when you include and talk about the state of California, which is our single biggest share market, I'll remind you that Modelo Especial is bigger than Coors Light, Miller Light, Bud Light combined. When you see some of that happen it has a disproportionate impact in the short term until the pricing scenario plays itself through. So we don't believe this is any long-term trend issues. And our confidence in that is bolstered by the fact that as I stated earlier to one of the earlier questions, that we saw a very strong rebound in the State of California during December. Relative to price mix, a piece of that -- by the way, I should also mention, the number one share gainer in the State of California in the last four weeks happen to be Pacifico. I think that also speaks to the strength of our portfolio. Our portfolio is not a one-trick pony. We have a very strong place in the Corona brand, and the Modelo brand as well as Pacifico, all of which I think is very positive. Relative to the price mix question, right? We are seeing mix benefits. Some of that, as I stated just a moment ago is related to Chelada, given how big and important Chelada has gotten to be, that is mix accretive to our overall business. And therefore, the 40-plus percent growth profile that you see from that particular subsegment of Modelo does add significantly to the mix benefit that you observed. Operator: Our next question is from Kevin Grundy with Jefferies. Kevin Grundy: Great, thanks. Good morning, everyone. So my question relates to trade down in the category over the next 12 months, given the sort of obvious element in the room with the macro factors. And I wanted to tie that in your level of confidence on -- in your beer segment. So we are seeing trade down like we see it in the Nielsen data for economy beers, which, of course, have been donating share for a long period of time. So Bill, how concerning is that when we look at trade down behavior and we've seen it in past recessions as well. I just want to see how that's sort of informing the view. And I think relatedly, just given some of the concern that's out there in the market today, I think folks would be very keen on hearing your level of confidence, I guess, in your intermediate term, high single-digit growth outlook for the beer business. The color you guys gave on margins was certainly helpful. And it looks like you're taking a conservative tack there. Is it reasonable to take a sort of similarly conservative tack in your outlook for top line growth in the beer segment looking out to next year as well? So thank you for all that. Bill Newlands: Sure. I'll go backwards there on that. Hopefully, I won't miss anything. We maintain our continuing expectation of our medium-term guidance that we've said before, we don't think there's any radical change to where that has been. And as you know, we've often beaten that in the past. Relative to trade down, we'd obviously watch this carefully. We are very fortunate in the alcohol beverage business that we tend to be recession-resistant, doesn't mean that there's no impact that we are -- it is certainly resistant. The interesting thing that's occurred at this particular time is we've seen variable trade down at our price points. It doesn't mean -- you're correct, there has been trade down, but it has tended to be from price points below us going even lower rather than trade down from our brands which I think speaks very strongly to this year's strength of those brands. We have seen some trading around within our brands. I know -- as I said a moment ago, the Pacifico scenario in the state of California is spectacular. And I think is reflective of the growth potential for that business but it also reflected some trading around within our portfolio that occurred. So we are less concerned. We also keep our eye on it. We are less concerned about trade down from our price points. And remember, we are continuing to market these brands in the same way that we have historically. Our share of voice at the consumer level has never been higher. And I think that's important as well. We continue to invest behind our brands to support those in the eye and the mind of the consumer. And I think that's going to be critically important during a time when there could be some trade down lower in the category. Operator: Our next question is from Andrew Strelzik with BMO. Please proceed with your question. Andrew Strelzik: Hi, good morning. Thanks for taking the questions. First, I'll follow up quickly and then another question. The follow-up is on pricing again. I'm just curious, obviously recognizing that you're making some of the commentary about '24 being a bit more muted, while you're seeing some volatility in the depletion trends. So can you just talk about how you'll be approaching that or what you'll be watching as you move through the year potential flexibility there, things maybe holding a little bit better? And then the other question is just on product innovation, which you mentioned all the growth that's been driven by product innovation in the last several years. How does the innovation pipeline look now versus the last several years? Are you -- where are you seeing kind of the biggest opportunities or where is the focus? And is that more or less relevant in this consumer environment? Thanks. Bill Newlands: Yes, you bet. So relative to pricing, Andrew, we believe we're going to be more -- we took more price now in October which will inherently have some rollover benefit within the P&L. But relative to new pricing taken in next fiscal year, we expect them to be back in that 1% to 2% range that we have consistently delivered. We think that's important, especially in an environment where the consumer is overly sensitive to pricing actions. We're in an inflationary environment across all areas in the consumer space. And our view is we need to be careful in balancing our growth profile with our pricing profile. And we're going to continue that thought and approach going forward because we think it's in the best long-term interest of our brands. Innovation is going to continue to be an important part of what we do. As you know, we're very excited about the launch here in March of Modelo Oro. Certainly, the Chelada business continues to be one of our great growth drivers. And many of those things, as I noted in my prepared remarks, are products that are relatively new. As you probably know, this fiscal year, we added a 12 pack, we added 12 ounce. We're putting a variety pack in. That's been very successful also. So we're reaching more consumers and more consumer occasions than what we have done. And therefore, we continue to expect innovation to be an ongoing part of our success, same through the wine business. You saw that with things like Unshackled with things like our Red Blend in Meiomi. You saw that with Illuminate, with Kim Crawford. We're -- and innovation has been a strength of our companies and that we can put outstanding liquids in the bottle or can as the case may be and continue to do so, and we think that's going to be an important part together with our core organic growth of our growth profile going forward. Operator: Our next question is from Chris Carey with Wells Fargo. Please proceed with your question. Chris Carey: Hi, everyone. So I'm just trying to get a little bit more comfort with the outlook on beer operating margins for next year. If I just take this concept of muted pricing and high single-digit inflation, I'm coming up with a little bit of operating margin compression, right, and maybe modest operating income growth in beer next year. And so I'm just wondering if that logic is sound or whether there are other things going on here like incremental savings programs for less spending elsewhere, which gets you to, I think, what you're implying is operating margins are flat, and if not, I just wonder if there's a more important revision of estimates that's required here, so thanks for any clarification on that? And any help you can provide on the bridge math. Garth Hankinson: Yes, Chris, thanks for the question. Look I think it's important to note that we will continue to deliver best-in-class operating margins, both this year and next year. As we said during the call, we're in the process right now of going through our annual planning review. And so we'll have a lot more detail to share on this with our Q4 earnings release and outlook for FY 2024. That being said, we did want to use today to acknowledge that next year's margin profile is going to be more in line with this year's margin profile for all the reasons that we discussed. Certainly, inflation continues to be enduring, and it's lasted longer than anyone had expected. And as we noted, many of our costs are contractual in nature, and those contracts when they get renegotiated, they get renegotiated at sort of the then inflation rate, not necessarily what the outlook for the year is. And we're going through that process again right now. So we'll have more clarity around where we land on those as we go through the next several weeks and months. We've talked about hedges in commodities, and commodities coming off their highs, but certainly, they certainly haven't reverted yet to where they were pre-pandemic, so they will continue to be a bit of a headwind for us next year. Depreciation will also be a bit of a headwind next year for us as we lay around the incremental CapEx that I referenced to Lauren's question, we will -- we do expect to go live with our ABA capacity expansion at Nava as well as that incremental capacity at Obregon. What's the impact to that depreciation on, again, we'll know better about that in the next few months because that's all dependent upon when assets are put into service. And then as you know, pricing will be a bit more muted. Again, we're still going to be within our 1% to 2% algorithm. We just won't be above 2%, like we have been not just this fiscal year but last fiscal year as well. And so those will be some of the headwinds. And again, we always have tailwinds for as well. The continued momentum of the brands, right? We'll continue to -- the brands will continue to grow and drive efficiencies, and we always have a robust set of cost savings initiatives that we will avail ourselves up. And again, we'll have more detail around what -- how each of those impact margins for FY '24 as we release our FY '23 annual results, but we wanted to acknowledge that on this call. Operator: Our next question is from Bryan Spillane with Bank of America. Bryan Spillane: Thanks, operator. Good morning, everyone. Just one quick one for me. Garth, I guess while we're talking about '24 there's a $26 million, I guess, gross contribution after marketing hit from the Wine & Spirits divestitures that affected fiscal '23. So does any of that spill into fiscal '24? Or are there still I guess drags from divestitures that we should be thinking about as we're just polishing up our '24 model today? Garth Hankinson: There won't be any more necessarily more drags per se from that, as the cost will come out. I won't say that the impact that you'll have is that there will just be a comparability issued for the first sort of three quarters of the year, but no further drag as we move into the year. Operator: And our final question comes from Vivien Azer with Cowen and Company. Please proceed with your question. Vivien Azer: Hi, thank you very much. I was hoping we could pivot to the wine segment, given the conversations around down trading in beer Bill, I was hoping to get some perspective on what you guys think you're seeing in wine, the Nielsen data would suggest that there is down trading there? And if you could just remind us, given all of the divestitures that you guys have done, what percentage of your wine revenues are coming from $20 and above? Bill Newlands: Sure, you bet Vivien. We have seen some more trading down in the wine business in the fact that private label has been tending to outpace branded sales by roughly 2.1 points in the last 12 weeks. So that has had some impact. What's interesting is you get a bit of a, I would say, a buying model scenario, meaning you're seeing some trade down at sort of mid- to lower price points. And then you're doing fine if you get into higher price points and a little bit in the middle has been a little shaky is some of what we're seeing. So -- which is a little different than what you have seen historically in these particular environments. As I said in my prepared remarks, there's been a pretty radical change in the amount of our business in the premium sector. I would -- I didn't categorize it as $20. But we're well over 60% of our total business now occurring in the premium and fine wine sector, which was 34% just a few years ago. So we're seeing a pretty radical move within our business as we thought what if we reshape the portfolio because over the long term that's where the consumer is going. And we believe that's not only where there's better profitability but there's better growth as well. So we believe the work that we've done is bearing fruit, and I think it plays itself out in terms of the growth profile of some of our higher end and critical brands. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Bill Newlands for closing remarks. Bill Newlands: Thank you, Rob. Despite the ongoing inflationary headwinds affecting the concern in our business over the last three quarters, we're on track to deliver another strong year of growth and remain well placed to further build on the solid track record we have established against advancing our long-term strategic initiatives for nearly four years now. Our Beer business continues to lead in share gains, growth and margins and we're confident in our ability to capture the significant opportunities we still see for our core and our next wave brands. Our Wine & Spirits premiumization strategy continues to gain momentum as well advancing our higher-end brands, DTC channels and international footprint, all yielding noticeable results. Lastly, the performance of our businesses, coupled with our disciplined and balanced capital allocation priorities has allowed us to maintain our investment-grade rating, surpass our cash returns goal, grow our beer production capacity and execute small growth accretive M&A. With all that said, let me reiterate, looking ahead, we remain committed and believe we now have an even stronger foundation to deliver sustainable growth and value creation for our shareholders. Thanks for everyone for joining the call, and I wish you a happy, safe and healthy New Year. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Operator: Greetings. And welcome to the Constellation Brands Fiscal Year 2023 Q2 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Joseph Suarez, Vice President, Investor Relations. Please go ahead. Joseph Suarez: Thank you, Kevin. Good morning all. And welcome to Constellation Brands second quarter fiscal 2023 conference call. I am here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measures and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company’s website at www.cbrands.com. Please refer to the news release and Constellation’s SEC filings for risk factors, which may impact forward-looking statements made on this call. Before turning the call over to Bill in line with prior quarters, I’d like to ask that we limit everyone to one question per person, which will help us end our call on time. Thanks in advance, and now, here is Bill. Bill Newlands: Thank you, Joe, and good morning all. Welcome to our second quarter call. I hope everyone had a good summer and enjoyed some of it with our great products. Before we get started today, I want to take this opportunity to say that our thoughts are with all those affected by Hurricane Ian. Thankfully, all Constellation employees living in Hurricane Ian’s path are safe and accounted for. We are also fortunate to avoid any adverse impact to our operations in the area to this point and we continue to stay in contact with our local distributors, retailers and other partners to best support their needs in this difficult time. Additionally, thousands of people in Florida, South Carolina, North Carolina and Virginia have been impacted by this natural disaster. So we are also supporting the American Red Cross with a significant contribution to help provide food, shelter and much needed assistance. We will also match employee contributions to the American Red Cross two-for-one as part of this effort and we hope it will provide at least some comfort to local residents as they work to recover and rebuild. I also want to remind everyone that we filed our proxy statement in connection with the Class B common stock reclassification a couple of weeks ago. We have called a special meeting of shareholders to vote on the reclassification next month on November 9th. At this point, we are unable to comment further or provide additional information on this topic during today’s call beyond what is available in the proxy statement and our other filings with the SEC. All of these filings are available through our Investor Relations website and I urge anyone interested in the special meeting or the reclassification to review these documents. Now, as usual, I would like to start by emphasizing a few key takeaways from our latest results. First, consumer demand for our products remained strong. Consumer led premiumization trends continue across beverage alcohol giving further confidence in the resilience of premiumization as a fundamental driver of demand for our brands. Buy-rate, which captures both the number of trips a consumer makes and the amount they spend per trip increased in the second quarter for both high end beer and total wine categories in tracked channels and buy rate for Hispanic high end beer consumers, which is particularly relevant to our core beer portfolio is also proving resilient. More specific to our brands, our beer business posted depletion growth of nearly 9% that is more than 9 million additional cases for the quarter. And in our Wine & Spirits business, our Wine portfolio gained share and outperformed the entire Wine category in tracked channels, while our craft spirits brands outperformed the higher end segment of the Spirits category. Second, our beer business also continues to outperform the entire category. In the second quarter, our beer business remained the leading share gainer in U.S. tracked channels across the entire beer category and now accounts for 28% of the high end segment. Importantly, we believe our beer business remains well placed to continue to support the steady growth of our brands with inventories across the supply chain at historical norms and production continuing for our operating plans to meet volume expectations for the fiscal year and incremental capacity unlocked from our existing brewery operations in Mexico through optimization and productivity initiatives and the expansion of our breweries at Nava and Obergon, as well as the construction process of our new brewery in Veracruz are all advancing as planned, all of which has given us the confidence to increase the fiscal 2023 net sales and operating income growth guidance for our beer business and continued conviction in our medium-term topline growth and margin algorithm. Third, the transformation of our Wine & Spirits business continues to yield results. Over the past few years, this business has been evolving from a U.S. wholesaler business focused mainly on the mainstream segment to a global omnichannel competitor primarily focused on the higher end. And in our latest quarter, our largest premium wine brands Kim Crawford, Robert Mondavi Private Selection, Meiomi and Ruffino and our largest fine wine brand, The Prisoner Wine Company all delivered solid depletion growth. In our craft spirits portfolio, High West, Casa Noble and Mi CAMPO all achieved strong double-digit depletion growth. In addition, our International and DTC channels each delivered double-digit net sales growth year-over-year and we continue to gain share in three-tier ecommerce. Fourth, our capital allocation priorities remain firm, starting with our investment grade rating. We expect to remain investment grade including after funding the expected $1.5 billion cash payment for the Class B common stock reclassification, given the strong operating performance and cash generation of our business. Moving on to cash returns to shareholders, as of the end of the second quarter, we were over 97% toward meeting our $5 billion goal and we have now exceeded the share buybacks component of our goal by $300 million and upon payment of today’s declared dividend, which we expect to take place next month, we will have fully achieved our goal ahead of our fiscal year-end deadline. Shifting to our third priority of reinvesting to support the growth of our beer business, as noted earlier, our capacity expansions and construction processes continue according to plan. And lastly, our M&A focus remains on small acquisitions to fill portfolio gaps, particularly in our Wine & Spirits business. This included most recently the investment in a minority stake in Archer Roose as part of our focus on Female Founders initiative, which is an accessible premium wine brand focused on offering consciously crafted wines to a new generation of legal drinking age wine drinkers. We are proud to say that five years into our focus on Female Founders initiative, we have fulfilled 76% of our commitment to invest $100 million to Female Founded and Female led startups in the beverage alcohol sector as part of our efforts to enhance social equity within the industry. Now let’s move on to a more fulsome discussion of our performance in the quarter. As I mentioned earlier, our beer brands continue to resonate strongly with the consumer gaining 1.8 points across the entire category and 2.5 points in the high end segment in tracked channels. Modelo Especial delivered depletion growth of over 10% and was the number one share gainer in the entire U.S. beer category. It continues to strengthen its position as the number two beer brand in dollar sales and is the number one or two beer in 11 states, more than double the number of states from just three years ago. We continue to see further opportunities to maintain the growth momentum of Modelo Especial particularly given the resilience of premiumization trends and our relentless focus on striving to close the brand’s distribution and awareness gaps. Corona Extra maintained its momentum with 6% depletion growth and as the number three share gainer in tracked channels. It remains the number one most loved beer brand with both general market and Hispanic consumers and our La Vida Mas Fina campaign has maintained the number one spot and aid awareness across the beer category. We continue to expect modest growth from Corona Extra supported by distribution gains within certain pockets of the U.S., where it is underrepresented and the brands appeal and growth potential with younger legal drinking age and multicultural consumers. Pacifico achieved depletion growth of over 37% and was a top 10 share gaining brand in track channels. We continue to see a fantastic growth runway for Pacifico as an emerging brand, particularly as the brand has significant distribution potential when compared to Modelo and even more so when compared to Corona Extra. Lastly, our Modelo Chelada brands posted depletion growth of more than 60% for the second quarter and Modelo Chelada, Limón y Sal was a top 15 share gaining brand in track channels. Modelo Chelada remains the number one brand family in the Chelada space and owns nearly 60% market share of the Chelada segment nationwide. However, awareness for Modelo Chelada is still relatively low compared to other flavor categories and we continue to expect significant growth as we invest in marketing to broaden the demographic appeal and in additional flavors and package configurations to unlock new consumption occasions for this product. All in, the strong demand for our brands in the second quarter supported a net sales increase of 15% for our beer business and this in turn drove a 25% uplift in operating income, which also benefited from the lapping of higher obsolescence charges last year. This gives us confidence to increase guidance for our beer business, as we now expect to achieve 8% to 10% net sales growth and 3% to 5% operating income growth for fiscal 2023, which Garth will review in more detail shortly. That said, it is important to remember that in the third and fourth quarters of fiscal 2023, we will be lapping elevated shipments from the second half of the last fiscal year that resulted from the rebuild of distributor and retailer inventories after supply shortages and severe weather-driven shipping disruptions that occurred in the first half of fiscal 2022. So while on an absolute basis, we continue to expect our shipments for the remainder of this fiscal year to be relatively in line with depletions, we believe the more comparable indicator for growth for our beer brands in the second half will be the depletion rate. Looking forward, we are also confident that over the medium-term, our beer business remains well positioned to deliver 7% to 9% net sales growth and 39% to 40% operating margin, supported by the sustained momentum of our core brands, the steady progress of our brewing capacity additions and the continued development of our innovation lineup, including the momentum of our Chelada brands, the recent launch of Fresca Mixed, the expansion of Modelo Oro from select test markets to the entire national market next year and the introduction of Corona non-alcoholic. The new non-alcoholic drinking age consumer is an attractive target as they also consume high end beer, as well as spirits and hard seltzers. So we are excited about the extension of Corona into this segment and we look forward to sharing more details as we approach the product launch. Moving on to Wine & Spirits. Our Wine & Spirits business is making headway with its vision to become a bold and innovative high end market leader. As noted earlier, the largest premium and fine wine brands and craft spirits brands of our portfolio delivered solid depletion growth rates in the second quarter and relative to the market, the higher end portion of our wine portfolio which includes our premium and fine wine brands outperformed the corresponding category segments in U.S. tracked channels. Our craft spirits portfolio delivered dollar sales grow significantly ahead of higher end segment of the Spirits category. Our Wine & Spirits business also continues to advance its mainstream strategy through a greater focus on brands and initiatives with higher returns, including through the delivery of relevant and innovative products. As we also announced this morning, we continue to further premiumize our business with a divestiture of a portion of our mainstream wine portfolio combined with a couple of select premium brands to the Wine group. When it closes, we believe this transaction will further enable us to focus our portfolio and efforts to deliver the industry-leading growth and margins that we continue to work toward. From an innovation perspective, we have several great examples of recently introduced products that are driving growth within our Wine portfolio. Woodbridge Box was the number two Premium Box share gainer in the second quarter, Meiomi Red Blend 750 was the number two wine SKU, Kim Crawford Sparkling Prosecco was the number four new wine brand and the recent launches of The Prisoner PINOT NOIR and Blindfold Blanc de Noir are respectively seeing early successes in priority accounts and the on-premise. Beyond product innovation, we continue to extend our growth in direct-to-consumer and three-tier e-commerce channels, as well as International markets. Wine & Spirits DTC net sales grew 15% in the second quarter, as our investments in these channels continue to yield strong performance. We also continue to outperform in three-tier e-commerce delivering dollar sales growth 16 points ahead of the competition in the second quarter. Importantly, we are also outperforming in three tier e-commerce with our beer business, which achieved a seven-point lead in dollar sales growth versus competition in the second quarter. Back to our Wine & Spirits business, International net sales grew 10% versus prior year showing the continued momentum of our brands in the select International markets that we are targeting, Going forward, we will continue to focus on growing our omnichannel and International footprint as we believe these channels will continue to grow as a portion of our mix over time and be an important opportunity for higher end growth. Now let’s move on to Canopy growth. While the impairment of our Canopy investment is clearly disappointing, it is not indicative of the significant long-term market opportunity that still exists for the legal cannabis market, particularly in the U.S., where the market was estimated at $25 billion at the end of 2021 and is expected to nearly double in size by 2026 as more states continue to legalize cannabis. In fact, the companies that Canopy invested in to establish its U.S. ecosystem continued to perform strongly and to scale. We also remain supportive of Canopy’s efforts to restructure its Canadian operations and its plan to further drive BioSteel’s growth, and believe these actions will also strengthen their business and ultimately provide an opportunity to enhance the value of our holding. Before I conclude, I also want to take this opportunity to highlight that we expect to release our 2022 ESG Impact report later this month. The report seeks to provide a comprehensive review of our ESG strategy and key initiatives designed to make a positive difference in our communities, safeguard our environment, and advocate for the responsible consumption of beverage alcohol. We will also for the first time be reporting with references aligned to the Sustainability Accounting Standards Board Framework and taking into consideration the recommendations from the task force on climate related financial disclosures. We believe these planned enhancements to our reporting will be valuable steps intended to better align with stakeholder expectations on the information we provide on these important topics reflect our company values and better showcase our ongoing efforts to address pressing environmental and societal needs that are important to our communities, our consumers and our employees. I invite all of our stakeholders to spend some time reviewing the report when it is released, which will be available through our company website. In closing, I’d like to reiterate our main takeaways from this quarter. Number one, consumer demand for our higher end beer and higher end Wine & Spirits products continues to be strong and we remain confident in the long-term prospects of our portfolio and our runway for growth. Number two, our core imported brands continue to outperform the industry. Modelo Especial further strengthened its position as the number two beer in the U.S. market and continues to gain ground as the number one share gainer. And Corona Extra also maintained its momentum delivering solid growth rates and taking the number three share gainer spot in the beer catagory. The strong performance of our brands in the first half of fiscal year now puts us on track to deliver better than expected growth for our beer business in fiscal 2023. Number three, we continue to see the benefits of our Wine & Spirits strategy taking hold. Our largest higher end Wine & Spirits brands are delivering growth and we are also performing strongly internationally with our higher end brands and e-commerce and DTC channels. And number four, we continue to deliver on capital allocation priorities by maintaining our investment grade credit rating, delivering cash returns to shareholders through dividends and share buybacks, advancing the brewery capacity expansion and construction processes in our beer business to support its continued strong growth and executing on disciplined tuck-in M&A to fill gaps in our portfolio. And with that, I would now like to turn the call over to Garth, who will review our financial results in the quarter. Garth Hankinson: Thank you, Bill, and good morning, everyone. As Bill mentioned, our business continue to perform well in the second quarter, delivering another strong set of operating results. We are making good progress against our operating plan and strategic initiatives, and we are now expected to exceed our previously stated fiscal 2023 net sales goals for the beer and Wine & Spirits businesses and our operating income goal for the beer business. Our strong Q2 results were led by 12% increase in net sales driven by growth in both our beer and Wine & Spirits businesses. Additionally, we achieved a 10% uplift in operating income underpinned by significant double-digit increase in the operating income of our beer business. Our strong cash flow results supported dividends and incremental share repurchases in Q2 that put us on track to exceed our $5 billion goal in cash returns to our shareholders by the end of this fiscal year. With that, let’s review Q2 performance and our full year outlook in more detail, where I will generally focus on comparable basis financial results. Starting with beer. Net sales increased 15% primarily driven by shipment volume growth of over 12% from strong demand for our core beer portfolio and higher average annual price increases. Q2 shipment volumes were generally aligned with depletion volumes and inventories across the supply chain remain at historical norms. From a growth perspective, depletions for the quarter were up nearly 9%, which was propelled by the continued strength of Modelo Especial, Corona Extra, Pacifico and the Modelo Chelada brands. Selling days in the quarter were flat year-over-year and will continue to be flat in Q3. Moving on to beer margins, we continue to experience headwinds driven by the inflationary economic environment, particularly in packaging material cost and shifts in mix. However, beer operating margin increased over 330 basis points to 40.5%, primarily driven by more -- up by favorable impact from pricing, lower obsolescence charges and lower marketing spend, as well as the favorable impact of fixed cost absorption and strong shipment volume growth. As you may recall, we reported higher obsolescence charges in Q2 of fiscal 2022 due to the slowdown in the overall hard seltzer category during the summer of last year. Marketing as a percent of net sales decreased 170 basis points due to the timing of our media spend. We continue to expect that marketing as a percent of net sales will be in the 9% to 10% range for the full year, as we anticipating -- as we anticipate marketing spend to ramp up in the second half of the year with the launch of new campaigns particularly from our media investments around college and NFL football. Given the strong performance of our beer business, we are now targeting full year fiscal 2023 net sales growth of 8% to 10%, and operating income growth of 3% to 5% for that business. Our updated fiscal 2023 outlook includes a 2% to 3% price increase, which is higher than the previously anticipated 1% to 2% expectation and medium-term algorithm range, as elevated cost continue to create pressure across the supply chain. However, we continue to expect an implied operating margin of approximately 38% for fiscal 2023. We anticipate second half operating income margins to be negatively affected as we expect the benefits from our pricing adjustments and cost saving actions will be more than offset by ongoing inflationary pressures across raw materials and packaging, particularly as more favorable hedges will continue to roll off, additional headcount and training, as well as increased depreciation from our brewery capacity expansions, and higher marketing spend as previously referenced. Now shifting to Wine & Spirits, Q2 fiscal 2023 net sales increased over 1% driven primarily by an increase in box sales and favorable pricing, and as Bill noted, Q2 depletion growth was solid for our largest premium wine brands Kim Crawford, Robert Mondavi Private Selection, Meiomi and Ruffino, our largest fine wine brand The Prisoner Wine Company and our largest craft spirits brand High West, Casa Noble and Mi CAMPO. Operating margin decreased 40 basis points to 19.3%, primarily driven by the continued impact of inflationary headwinds and higher general administrative expenses. The increase in COGS was mainly a result of higher supply chain costs, particularly container surcharges and warehousing, and higher material costs, including grapes and glass, partially offset by favorable fixed cost absorption as a result of the lapping of the New Zealand frost and the wildfires in the U.S. The increase in general and administrative expense was driven by compensation and benefits primarily to improve marketing effectiveness. Marketing was favorable due to the time -- timing of spend. For full year fiscal 2023, we now expect Wine & Spirits net sales to come in flat to down 2% and operating income to increase 3% to 5%. This implies operating margins of about 24% for fiscal 2023. Despite significant inflationary pressures and the inclusion of Cooper and Thief and the divestiture previously referenced by Bill, we continue to expect a considerable improvement in operating margins albeit at a lower point than previously anticipated. As noted in our Q1 earnings call, we expect to achieve the uplift in operating margins in the second half through the following key drivers; consumer led premiumization and mix improvement mainly in our fine wine brands; incremental pricing actions executed in Q2 that will be fully reflected in the second half; a bountiful New Zealand harvest, which will drive volume and enhance margins for Kim Crawford; lowering marketing as a percent of net sales; and finally, continued benefits from our cost savings initiatives. Now let’s proceed with the rest of the P&L. As we also discussed in our Q1 earnings call, increased investment in our digital business acceleration initiative was the primary driver of our higher corporate expense. The majority of the spend in our Digital Business Acceleration Program or DBA for short was incurred in Q2 and we expect to start to see some small benefits from these investments later this fiscal year, followed by larger benefits in FY 2024. As a reminder, the goal of our DBA initiative is to support our aim to become a digital leader and capture value. It is a combination of data, technology and operating models, including evolving ways of working organizational structures and acquiring talent. DBA builds on the implementation of our SAP platform, it was completed last year and we anticipate it will enable us to deliver cost savings and greater efficiency in a number of areas by taking our digital strategy to the next level. The first phase of our DBA program is focused on three key areas, supply chain, marketing and procurement each with their own objectives. The aim of these initial efforts is to maximize efficiency across end-to-end supply chain, to build a world-class procurement function with greater spend visibility and to unlock demand for our products by analyzing and connecting multiple consumer data sources. We continue to expect $35 million to $40 million of spend in our DBA program for fiscal 2023 as part of our total $265 million to $270 million of corporate spend anticipated for the full year. Comparable basis interest expense for the quarter was relatively unchanged. However, we now expect interest expense for fiscal 2023 to be between $360 million and $370 million as a result of the July equitization of the Canopy debt securities and rising interest rates. This excludes the impact of any interest expense associated with the funding of the $1.5 billion cash consideration payable in the event the Class B common stock reclassification closes. From a balance sheet perspective, should the reclassification be approved on a Q2 FY 2023 pro forma basis, our net leverage would increase to approximately 3.5 times when considering funding for the premium payment and excluding Canopy equity earnings. We ended the second quarter with a net leverage ratio of approximately 3 times excluding Canopy equity earnings. As Bill noted, we have nearly completed our goal of returning $5 billion to cash to shareholders. We will continue towards our goal through planned dividend payouts and opportunistic share buybacks throughout the remainder of this fiscal year. This remains a top capital allocation priority and we now expect to exceed our cash returns to shareholders goal by the end of this fiscal year. That said, we continue to expect our weighted average diluted shares outstanding to be approximately $186.5 million for fiscal 2023 including shares repurchased in Q2. As a result of the adjustments to our beer business growth outlook for fiscal 2023 and the partial offset from higher interest expense, we now expect EPS comparable guidance to be in the $11.20 to $11.60 range, which represents a $0.10 increase the top end of our prior guidance range. Moving to free cash flow, which we define as net cash provided by operating activities less CapEx. We generated free cash flow of $1.2 billion for the first half of fiscal 2023, which is a 4% increase versus prior year, reflecting strong operating cash flow, partially offset by 23% increase in CapEx investments, as we continue to make good progress on our brewery capacity expansion plans to support the robust growth of our beer business. In addition, our brewery optimization and productivity initiatives have enabled us to utilize incremental capacity from our existing footprint. We now estimate our current total capacity to be approximately 41 million hectoliters, giving us additional production flexibility and enhancing the returns of our prior capital investments. We continue to expect fiscal 2023 free cash flow to be in the range of $1.3 billion to $1.4 billion, which reflects operating cash flow in the range of $2.6 billion to $2.8 billion and unchanged CapEx of $1.3 billion to $1.4 billion. Lastly on Canopy growth, we recorded a $1.1 billion impairment on our investment, which was excluded from our comparable basis results. This non-cash item was driven by the following factors, the period of time for which the fair value has been less than the carrying value and the uncertainty surrounding Canopy stock price recovery in the near-term, Canopy’s previously announced goodwill impairment for their cannabis operations and the uncertainty of U.S. federal cannabis legalization. In addition, we also recorded a $651 million equity loss from our share of ownership in Canopy, which includes $461 million of Canopy’s goodwill impairment. While disappointing, we continue to believe that Canopy’s focus on premiumizing its cannabis branded portfolio to improve their performance in Canada is appropriate and we also remain supportive of Canopy’s efforts in the U.S. to strengthen their emerging CPG brand distribution and build of a competitive THC ecosystem. In closing, we continue to deliver strong business performance and are proud of the continued progress we are making against our operating plans and strategic initiatives. Our beer business continues to outshine the market and our Wine & Spirits business is showing the benefits of its strategy to become a global omnichannel competitor in line with consumer preferences, primarily focused on the higher end. With that, Bill and I are happy to take your questions. Operator: Thank you. [Operator Instructions] Our first question today is coming from Dara Mohsenian from Morgan Stanley. Your line is now live. Dara Mohsenian: Hey, guys. So on the beer… Bill Newlands: Good morning, Dara. Dara Mohsenian: …business, there has been a pretty nice halo the last few quarters between scanner data and the reported depletions just as on-premise recovers post-COVID. It wasn’t as much the case this quarter. So can you just give us some detail on on-premise and untracked channels in general in Q2 and what you are seeing there? And then on the beer margin side, obviously a big beat in the quarter versus consensus, that’s great news, but the implied H2 margins of 36% are well below what you saw in the first half, obviously there is some seasonality there? But just help us understand as we think about margins for fiscal 2024. Should we think about it more relative to a 38% full year basis and more relative to 36% the back half, again there’s some seasonality there, but just conceptually how you think about that would be helpful? Bill Newlands: So why don’t -- Garth why don’t I take the first part. So relative to the on-premise, it’s very typical of us to see a stronger Q1 on-premise, because it includes Cinco, which is the single biggest event and occasion for our beer business in the on-premise. On-premise was roughly 11% of our volume in this particular quarter, which was slightly less than it was in the prior quarter. The other thing, I think, it’s always important to look at is, our depletion volume, it has been very consistent with what we look at in IRI trends. And as an example, in our beer business in the most recent IRI trends, the 26-week data showed in totality 7.5% growth and purely the import business showed 9.4% growth. That’s very consistent with our roughly 9% depletion growth in this particular quarter. The other place we will also see strength within our business is in some of the untracked channels in smaller Hispanic, particularly Hispanic accounts, particularly our West, which are not tracked by IRI or Nielsen channels. So, all in, I think, again our depletion growth profile looks exactly like what the take out trends in tracked channels are. And I think, as we have said many, many times, this year in particular that is really the way to look at our business due to the variance that we saw last year in weather-related activities in our and when we shipped and when we did maintenance and things of that nature, which I am sure Garth will touch on here in a moment. Garth Hankinson: Yeah. Dara, on the margin piece. So, one, I would say that, you would expect that this year’s margin profile on a first half versus second half would reflect something if it’s more normal, which we really haven’t had the last couple of years due to sort of production issues that we had to contend with, which led to sort of a rebalancing of our shipments. Again, this will be more, because we are in a more typical production environment, you will see a more sort of normal first half versus second half margin profile. We are expecting margins in the second half to be negatively impacted as I said in my remarks as the benefits from pricing and some of the cost saving actions will be more than offset again by ongoing inflationary pressures. From a material’s perspective, we continue to see some pressure from corn, as well as cans and cartons and glass. As you know, we have a relatively robust hedging policy. But the way that we layer in those hedges and then the way that those hedges then roll off, we saw the greatest impact from those in the first half of the year. So while we are nicely hedged, they just won’t be at the favorable rates if you will, as we were in the first half. And then again as is typical -- and then it’s typical as we are laying out incremental capacity, we will be impacted by incremental costs as we bring on people to train in advance of the capacity coming online. And then, finally, we are expecting to see a significant increase in marketing in the second half versus the first half as we support new marketing campaigns around college and NFL football. For FY 2024, our guidance is continues to be clear on that. We continues to view the right way to think about our margins is in that 39% to 40% range and we are not coming off of that. Dara Mohsenian: Great. Thank you. Operator: Our next question is coming from Kevin Grundy from Jefferies. Your line is now live. Kevin Grundy: Great. Thanks. Good morning, everyone. Bill, I wanted to pivot to the wine sale this morning, given the continued premiumization focus but you are holding onto Woodbridge, a more value-oriented brand, I think, the view there in the past has been that that brand offers scale. Just a little bit on how the deal came about, whether you can comment, whether you are done and generally pleased with the shape of the portfolio at the conclusion of this transaction? And I think, just kind of taking a step back, just given the change here, and I think, it’s sort of been in some state of transition for a period of time, it sort of begs the broader question, whether the wine portfolio albeit a narrowed down one and more focused on premium -- the premium end of the category, whether you think it still makes sense within the broader portfolio relative to a beer business, much higher growth margins and return on capital. So I’d love to get your thoughts there. Thanks so much. Bill Newlands: Sure. Look, we are very pleased with the progress that we are seeing in the Wine business and the divestiture that you saw this morning again it helps to reshape the portfolio. What I -- the way I think you should think about our total business is we are increasingly focused our attention on the higher end. We have noted that for many, many years as it relates to beer. We have now specifically related that on our Wine & Spirits business as well. As you probably noted, most of the tuck-in work that we have done in our Wine & Spirits business has been focused on craft spirits, as well as higher end wine brands that fill portfolio gaps, all of which focus on the high end, where we believe the growth and margin profile are significantly improved. So I would think about this today as just a further step in the reshaping of our business. As we have said, we are very focused on seeing a growth profile and an improved margin profile on that business, and we believe we are well on our way to delivering that and today is just again one more step in the process of achieving that goal. Operator: Thank you. Our next question is coming from Lauren Lieberman from Barclays. Your line is now live. Lauren Lieberman: Great. Thanks so much. Good morning. I was just curious on the second half outlook because some of the things - just in terms of the cost structure because some of the things you have called out in terms of rolling hedges and so on. I would have thought, you might have had some visibility into previously. So I was just more curious on the, what’s changed on the second half cost outlook rather than just why second half is different than first half? And then the second thing was, you made a pretty clear statement on the medium-term algorithm still looking for 39% to 40% margins on beer. So outside of the timing shifts that are impacting the second half margins, I was just curious if you can maybe look forward fiscal 2024 and beyond, like, do we get back to 39% to 40% in 2024 or is it a longer rebuild because of where you think that -- those relative hedge positions kind of roll through when we look into 2024? Garth Hankinson: Yeah. So, Lauren, on the first half of that around what changed from Q or from the first half of the year to the second half of the year, and I would say that, really nothing changed in our mind. We give guidance on an annual basis, not on a quarterly basis, and we are going to deliver margins in line with where we said at the beginning of the year. Do you want to answer the second half, Bill? Bill Newlands: Yeah. Sure. I think the way that -- I think we will obviously give specific guidance on fiscal 2024 when we get to that timeframe. But I think, what we are seeing is, we continue to see a long runway for growth in our beer business and we think that’s in the 7% to 9% range consistently. We think, we are going to see consistent delivery of 39% to 40% on the margin play. As Garth and I have always said, over the last several years, you have opportunities to be ahead or behind that in any one particular year. This year we are a little behind that algorithm because of a number of factors that we have touched on before. But we still believe that is a solid expectation for the medium-term and we will give specific guidance around 2024 when we get there. But we believe that’s a consistent approach that we are going to be able to deliver on with consistency for the next several years. Operator: Thank you. Our next question today is coming from Bonnie Herzog from Goldman Sachs. Your line is now live. Bonnie Herzog: All right. Thank you. Good morning, everyone. I… Bill Newlands: Hey, Bonnie. Garth Hankinson: Hi, Bonnie. Bonnie Herzog: I was hoping for a little more color on your beer shipments versus depletions. I guess, first, it would be helpful to hear, how your quarter-to-date depletions have been tracking. And then second, you mentioned depletion should outpace shipments in the second half, but just really trying to think through how we should think about your shipment in the context of your new topline guidance, it does imply really any shipment growth in the second half. So, I guess, what I am really trying to understand is given you are lapping some of the brewery maintenance you had last year in Q3 and then you have the rollout of some really strong innovation such as Modelo Oro that will need to be shipped in Q4. So I am just kind of thinking through your new topline guidance and it feels pretty conservative. So I just want to make sure I understand that? Thanks. Bill Newlands: Sure. Well to answer your -- first part of your question, Bonnie. The start of the quarter, September was very solid and it’s consistently in line with what we expect our annual numbers to be. So we certainly think we are off to a good start in the -- in Q3. Garth said this at the beginning of the year that it was going to be a very lumpy year. The important part that I think everyone should think about is, our depletion, the actual volume of our depletions and our shipments year-to-date are almost on top of one another. However, because you are comparing to last year and because we had shipping disruptions last year, it looks very different on a percentage basis. One an actual volumetric basis, they are very similar and you are going to see the same thing for the rest of the year. But this is why we have consistently said, the best thing to do to look at the success of our business is the depletion rate and our depletion rate year-to-date on our beer business is in just under 9%, and obviously, that’s why we increased our guidance, because we have further confidence that we are going to outpace the growth profile that we set out at the beginning of the fiscal year. So that’s the way, we have consistently urged that people think about it around the depletion rate, because it’s just going to be lumpy this year on the shipment side, doesn’t take away one iota for the outperforming success that our beer business continues to have in the marketplace. Operator: Thank you. Our next question today is coming from Andrea Teixeira from JPMorgan. Your line is now live. Andrea Teixeira: Thank you. So I just want to go back to this question, because it does imply though that, of course, you shipped more than you had in depletions in the 9%. So what you are seeing now, we should be seeing shipment volume negative in the third quarter and the fourth quarter, which is that’s what’s implying because we see it at flat revenues. If I understood it correctly, minus 2 to plus 2 giving your guidance and you have pricing. So you are just telling us to assume volumes will decline in the second half. I just want to clarify that. And then another question related to that, given the pressures that you had in commodities rolling over and all the hedges, isn’t it make sense to take another pricing usually in the fall to kind of like offset those pressures? Thank you. Garth Hankinson: Yeah. Andrea, thanks for the question. So, first of all, just to reiterate with what you said, our shipments and our depletions for the first half of the year have been in line with one another, so we have not over shipped beyond the depletions. The issue between the first half and the second half is strictly due to the timing of shipments related to some production outages or we had to deal with last year. So that’s the differential. As it relates to your point on pricing, as we said in our scripts, we are taking more pricing this year, we update for this year from our normal 1% to 2% algorithm to 2% to 3%. Bill Newlands: The other thing, I think, it’s important to consider is, we have seen significant mixed benefits in our business as well. There’s been a -- because in part from the growth of Cheladas, which are almost entirely single serve or we have added some innovation in different size and pack configurations, but the single-serve pieces of our business, have been very strong. It’s a great example of that’s mix accretive. So in addition to purely the fact that we are going to be taking a bit more price than we had originally anticipated, we also are seeing mixed benefits within the portfolio as well, which will be advantageous. Operator: Thank you. Next question is coming from Rob Ottenstein from Evercore. Your line is now live. Rob Ottenstein: Great. Thank you very much. So wondering if you could talk to us a little bit about what’s going on with Modelo and Corona. Corona being somewhat stronger than we would have expected, Modelo still very strong, but slightly slower than it has been in prior years. Is there anything going on there in terms of the interaction between those two brands or the brand families that we should be aware of? Bill Newlands: No, Robert. I don’t think so. I mean, again, when we look at the kind of growth profile that Modelo Especial using that as the example. In any of the volumetric trend timing, we are growing in double digits all the way along and that becomes, obviously, that the bigger it gets the more double digits is a very enjoyable proposition. We are very excited admittedly about Corona Extra. Corona Extra has grown a bit ahead of what we had expected. But I think that speaks to the just the long-term belief amongst both Hispanic and non-Hispanic consumers in that brand. It’s the most loved brand. We continue to benefit from that. And we continue to advertise against that business very heavily. So I wouldn’t read a lot into the fact that Modelo was continues to grow double-digit, but it’s slightly less than the last double-digit. I would view it as we have a comprehensive brand portfolio whether you talk about Modelo Especial, Corona Extra, the Chelada business, Pacifico, that just continues to radically outperform and that in combination allowed us to raise our expectations for the beer business for the year. Rob Ottenstein: Great. Thank you. Bill Newlands: You are welcome. Operator: Our next question today is coming from Bryan Spillane from Bank of America. Your line is now live. Bryan Spillane: Thanks, Operator. Good morning, guys. Bill Newlands: Good morning. Bryan Spillane: I just wanted to ask a question about, I guess, beer inventories and given that you have had more supply this year and it seems like you’re in-stock levels are better in assortment. Has it just being more in-stock with your -- with a full array of assortment is that, how much of a benefit has that been to depletions? Bill Newlands: Well, obviously, any time you have all the packages and you have all the availability that you expect, it certainly is beneficial. What I must say is our team has did an outstanding job of making sure throughout the challenging time, when we had some product outages to make sure that we had availability of the brand. Brand size switching, meaning package size switching within the beer business is very strong, because most consumers come into the store planning to buy a Corona or a Modelo, and therefore, will adjust their package size selection based on what’s available. We have seen that through in-depth consumer research. So, yes, it certainly helps some because it provides the wide array of selection that we own to consumers. But it doesn’t change the algorithm radically, because as you have seen, we continue to show high single-digit volumetric and double-digit topline growth within the business, almost throughout the entire thing. The other thing that I would say though, where you do see some real change by availability is Pacifico. We have said a couple of quarters ago, we had some challenges around brown glass, which significantly impacted Pacifico, but didn’t really change, in fact some of you on the call asked questions about that, are we concerned the Pacifico’s growth profile is what it once was and it comes roaring back with 37% and the IRI data shows over 50% take out increases. So I think it shows and confirms what we had said to you on prior quarters is that Pacifico is a tremendous potential brand for us going forward and it is a great example to your question of in instances where you -- we have had some challenges on inventory, what can really happen in the strength of our inherent brands. Operator: Thank you. Our next question today is coming from Kaumil Gajrawala from Credit Suisse. Your line is now live. Kaumil, perhaps, your phone is on mute? Bill Newlands: Talk to us, Kaumil. Kaumil Gajrawala: I am sorry about that, guys. Bill Newlands: There you are. Garth Hankinson: Carry on. Kaumil Gajrawala: Can we talk a little bit about the price increases, you are looking for a little more pricing perhaps than you had expected for, are they in place, what’s the magnitude? And then on price gaps, you gave pretty compelling reasons in previous quarters on why you are going up perhaps less than the market, given kind of our outlook for inflation, most of which has come through. So can you maybe talk about kind of this new outlook and what has changed? Bill Newlands: I think there’s two or three things that fall into that equation. You are correct, we have raised our expectation from 1 to 2, 2 to 3. I think there’s several things that are in play there. We have been very excited by the buy rates that we have seen across our business one. We obviously are doing our best to cover as best we can some of the inflationary pressures that Garth noted in his remarks. But we really haven’t changed how we do pricing. We do our pricing, SKU-by-SKU, market-by-market, all the way across the Board. But it will probably come into that 2 to 3 range, which again is up from what we expected. I think, an important part and I touched on a couple of questions ago is, we are also seeing mixed benefits, which does flow through in terms of how it presents itself when you have things like single serves doing better, which is a better mix item for us, you see Chelada which are all almost all single serve being a better mix item for us. So you have got a combination of, yes, we are going to take a bit more pricing. Yes, you are seeing better mix in the overall equation and yet we are still doing it the way we are doing it, which is SKU-by-SKU, market-by-market. And I believe it’s remains judicious, we always keep the consumer in mind as we think about what we are doing relative to pricing and that certainly isn’t going to change. Operator: Thank you. Our next question is coming from Vivien Azer from Cowen and Company. Your line is now live. Vivien Azer: Hi. Good morning. I want to touch on… Bill Newlands: Hi, Vivien. Vivien Azer: …cannabis, Bill. Hi. I wanted to touch on your comment on safe banking. I mean, I fully agree rate like so hard to know, but in the base case assumption is that Republicans flip the house. It seems like there’s maybe better than a 50% chance that they could pass. Historically cannabis indicated that the Constellation Board sensitivity in your lender sensitivity is the key determinant in terms of their ability to close their purchase obligation on acreage that would certainly be meaningfully accretive to their bottomline and in turn, how you guys are reporting that business. So could you just offer any updated insights on how the Board and your lenders are thinking about safe in the current kind of health version very narrow? Thanks. Bill Newlands: Sure. We feel miserably of predicting how that was all going to play out. So I would take my answer with a slight grain of salt admittedly. But we are cautiously optimistic that that there will be progress. What I am particularly happy about relative to Canopy, as I think they are positioned to be a winner in the U.S. There want jetty and acreage layouts which are all ready to go. I think are an important part of being a winner. We still believe that in the longer run brands are going to matter and I think they are positioning themselves to have the right brands that will matter over the long run here in the U.S. But look, we are optimistic, I think, everybody’s optimistic that we are going to start to see the legislation loosen up, although again being able to predict that, I would have feel miserably on that score, but we are hopeful. Operator: Thank you. Our next question is coming from Nadine Sarwat from Bernstein. Your line is now live. Nadine Sarwat: Hi, guys. I’d like to kick off with the two long-term questions here. So sticking on the Canopy’s points in the past you have alluded to U.S. federal legalization has been one of the key factors behind your continued confidence in the Canopy investment, but it’s now one of the stated reasons for the meaningful impairment you took today. So how long are you willing to wait to see U.S. legalization happen and do you see the size of your stake changing in Canopy anytime soon? And then, similarly, a bigger picture question, you are super premium beer brands continue to perform strongly in the last quarter, but the consumer is seeing increasing pressure on their wallets from macro pressures. So are you seeing anything if any changes in consumer behavior quarter-to-date from that macro pressure? Thanks. Bill Newlands: Sure. Well, I will take -- let me take the wallet question, then we can decide who takes the other. No, unfortunately, we have. One of the things that we recognize is beer fortunately is a staple for many of our -- much of our consumer base. So we have seen some variation in terms of the pack sizes that have been taken out. But as I alluded earlier and we view this is a critical component. The buy rates that we have seen have been increasing and that’s one of the first things you look at is the number of times as people go to the store and when they take out when they are in the store. So, we are cautiously optimistic that this is going to continue to go well for us. I think it speaks to the strength of the brands and I think it speaks to the strength of the brand confidence that consumers have with us. Relative to cannabis, I wouldn’t expect you to see the size of our investment in that change. Garth Hankinson: And as to outlook, I would just say that, in terms of the first part of your question around legalization. First of all, that was one part of a multi-part analysis to determine whether or not we need to take a -- to take the impairment that we announced today. Beyond that we continue, as Bill has said we continue to be pleased with how the cannabis category has unfolded. In the U.S. as Bill noted in his remarks, it’s now a $25 billion retail sales opportunity in those states where it’s legal. So it is starting to convert consumers, consumers are adopting to the category and we are happy with the position that Canopy has in the U.S. and with the improvements that they are making in Canada. Operator: Thank you. Our next question today is coming from Bill Chappell from Truist Securities. Your line is now live. Bill Chappell: Thanks. Good morning. Just couple questions on mix, I mean, Modelo Oro, I can’t remember, is that the shipments as you expand nationwide going to have an impact or a meaningful impact on the back half of the year kind of shipments or is that more into next year or is it did not meaningful. And then second and I know that I should probably understand this, but why isn’t just coming out, it’s Modelo Light. I mean it seems like with some of the confusion of Corona Premier that the consumer doesn’t always understand that it’s a light beer or it’s a low-calorie beer. So any clarification would be helpful. Thank you. Bill Newlands: Yeah. You bet. Oro is going to be taken nationwide next fiscal year. So it will have no impact per se in the back half of this current fiscal year. It’s in three test markets now, and obviously, it will continue, but it will be taken nationwide next year. Look, we did a lot of study as to what we thought was the best answer. We -- if you actually look at the can that we are really talking about the gold standard of light beer. So I think the consumer will understand what they are going to get. Our understanding from the research is that they do understand what it is. And certainly, we were very pleased with the results of the test market and are anxiously looking forward to seeing how it does on a national basis next year. It was highly incremental and we are very excited about that as well. So we are very optimistic about what Oro can do when it -- when Modelo has a quote light version unquote. Operator: Thank you. We have reached end of our question-and-answer session. I’d like to turn the floor back over to Mr. Newlands for any further closing comments. Bill Newlands: Thank you again and appreciate all of you joining our call today. Hopefully, as you could hear, we delivered another quarter of strong growth performance. Consumer demand for our higher end beer, Wine & Spirits brands remain robust, giving us further confidence in their runway for future growth. Our Core beer brands Modelo Especial and Corona Extra continue to out shine the market and our next wave brands like Pacifico and Modelo Chelada are achieving very strong double-digit growth. We continue to see opportunity ahead for our beer portfolio supported by continued consumer led premiumization and our ongoing investments in brewery capacity expansions. The benefits of our Wine & Spirits strategy are also taking hold, as our higher end brands continue to resonate with consumers and our global and omnichannel efforts are yielding benefits. Our largest premium wine, fine wine and craft spirits brands all delivered positive depletion growth and we achieved double-digit net sales growth in both DTC channels and International markets. And we continue to demonstrate again that we are committed to capital allocation priorities to maintain our strong financial foundation, balanced returns and reinvestment and deploy excess cash with discipline. In closing, as our next earnings call is not for January, I’d like to wish everyone a safe and happy holiday season. And as always, we hope your celebrations will include enjoying some of our great products with your family and friends. Thanks again, everybody. I appreciate you are joining the call. Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Operator: Good morning, and welcome to the Constellation Brands First Quarter Fiscal Year 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations for opening remarks. Please go ahead, Patty. Patty Yahn-Urlaub: Thanks, Kevin. Good morning, and welcome to Constellation's Q1 Fiscal '23 Conference Call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors which may impact forward-looking statements we make on this call. Before turning the call over to Bill, similar to prior quarters, I would like to ask that we limit everyone to one question per person, which will help us to end our call on time. Thanks in advance, and now here's Bill. Bill Newlands: Thank you, Patty, and good morning, everyone. Before we get started today, I wanted to take a minute to recognize Patty, who, after 15 years with Constellation, has elected to retire next month. We appreciate Patty's commitment in helping shepherd our Investor Relations function since joining the company in 2007. And on behalf of all of our team here at Constellation, we thank Patty for her many contributions to our success over the years, including managing our relationships with a number of folks on this call. We wish her the very best in retirement. Effective July 1, leadership of our IR function will transition to Joe Suarez, who joined Constellation last November as Vice President of Investor Relations. Joe previously served as Managing Director at Teneo, a global CEO advisory firm. Prior to his time there, Joe also served in a range of commercial, governance, finance and investor relations roles for a couple of major players in the global resources sector. We look forward to the continued success of our Investor Relations function under Joe's leadership. With that, let's move on to a discussion of our first quarter results. We're off to a strong start in our new fiscal year, thanks to the solid fundamentals of our business, the disciplined execution of our strategy and the relentless commitment of our Constellation Brands team as well as that of our distributors and retail partners. Our performance in Q1 fiscal '23 continued to build momentum in 3 key areas tied to our long-term goals. First, our beer business once again delivered industry-leading share gains with Modelo Especial and Corona Extra taking the #1 and #4 spots among share-gaining brands across track channels. The business achieved an important milestone, having reached more than 5 full points in shares gained over the last 5 years. Coming back to Q1. Our beer business delivered net sales growth of 21% and added nearly 15 million cases in incremental shipment volume. As anticipated, these significant increases were partly driven by the lapping of supply challenges as a result of severe weather impacts in Q1 fiscal '22. For clarity, ships and depletes in our current quarter were roughly equal on an absolute basis. Importantly, our shipments mainly were underpinned by continued strong demand for our authentic Mexican beers, our consistent and balanced approach to pricing and the effective ramp-up of new brewing capacity from our organic growth investments. Second, our Wine & Spirits business outperformed the U.S. Wine & Spirits category in tracked channels, where we gained share supported by strong performance of our higher-end brands. Our Wine & Spirits business grew net sales by 2% and saw overall U.S. depletions increased by over 1% with the premium wine and fine wine and craft spirits portions of our portfolio achieving 8% and 16% depletion growth, respectively, with brands like Meiomi, the Prisoner, High West and Casa Noble delivering double-digit depletion growth rates; and third, our sustained and strong operating performance and cash flow generation enabled us to continue to deliver against our established capital allocation priorities. Our balance sheet remains strong. We continue to invest behind the momentum of our beer business with a focus on growth and flexibility, and we exceeded our planned $500 million accelerated share repurchase activity with an additional $800 million in buybacks. In fact, we have now fulfilled the share buyback portion of the $5 billion goal in cash returns to shareholders that we promised. Now let's discuss in more detail our beer business performance. We maintained our #1 position as the #1 supplier in high-end beer in the U.S. and achieved depletion growth of almost 9% in the quarter, consistent with our expectations and our growth profile target. As for Memorial Day, which celebrations took place within the quarter, we were the #1 share gainer for that holiday, capturing 1.5 share points of total beer and 2.3 points of high-end beer in the U.S. tracked channels. In the on-premise, our beer business achieved a 30% depletion growth rate across the portfolio and delivered double-digit growth for the Corona and Modelo brand families as well as Pacifico. As mentioned, Modelo Especial remains the number one share gainer in tracked channels, adding over 1.2 points in incremental share, nearly double the incremental share of the second largest gainer. Overall, Modelo Especial delivered the total depletion growth above 15% for the quarter. Our Modelo Chelada brand family grew in line with our medium-term double-digit CAGR expectations, achieving over 39% depletion growth in the quarter. The national release of our new Limón y Sal 12-ounce, 12-pack helped this popular flavor of our Chelada brand delivered the 15th largest share gain across the entire U.S. beer category in tracked channels. And although it is still very early days for our other Modelo innovations, we are encouraged by the initial data we're seeing in test markets, particularly for [Oro] (ph). We continue to be encouraged by the sustained healthy growth of Corona Extra. This brand delivered over 4% depletion growth for the quarter, and as mentioned earlier, was the #4 share gainer in the U.S. beer market in tracked channels. We continue to expect modest growth for Corona Extra in fiscal '23. And Pacifico delivered depletion growth of more than 20% for the quarter. We continue to expect Pacifico to grow in line with our medium-term 10% to 15% total annual volume growth forecast in fiscal '23. All in, our beer business delivered strong net sales growth for the quarter and this, in turn, supported a double-digit increase in operating income. Looking ahead, we're confident that our beer business remains well positioned to deliver against our net sales and operating income growth targets for fiscal '23 despite the ongoing inflationary pressures affecting consumers. We'll continue to take appropriate pricing and cost management actions to ensure we maintain both the growth algorithm of our brands and our industry-leading margins. We'll also continue to support our consumer-led innovation and brand building efforts throughout the remainder of the year. which will include the launch of our Fresca Mixed vodka spirits and tequila Paloma flavors in early September. And we continue to make progress with our brewing capacity additions including our new brewery to be built in the state of Veracruz. During the quarter, we were pleased to have formally announced the location of our new brewery with the President of Mexico, Andres Manuel Lopez Obrador, as well as with both the Governor of the State of Veracruz and the Mayor of the city of Veracruz along with federal, state and municipal authorities. The new brewery will be located in the port of Veracruz, one of the most prominent seaports in the region and will have ample access to water and necessary resources and a highly capable workforce as President Lopez Obrador himself has stated. We look forward to continuing the remarkable journey of our strong performance of our beer business with a focus on both growth and flexibility as we deploy the investments needed to meet steadily rising demand for our products. Now let's move on to Wine & Spirits. Our strategy to increasingly focus on higher-end brands, aligned with ongoing consumer-led premiumization trends, continues to enhance the commercial performance of our Wine & Spirits business. The premium wine, fine wine and craft spirits portions of our portfolio all significantly outperformed their corresponding categories in tracked channels. Meiomi, the Prisoner and Kim Crawford remain the driving forces behind our premium and fine wine growth with continued share gains in tracked channels and strong increases in depletions. And in craft spirits, our High West and Casa Noble brands delivered dollar sales growth ahead of the competition. We maintained share in mainstream wine with Woodbridge primarily driving that performance. Our innovation efforts also continued to produce excellent results with Meiomi Red Blend becoming the second largest new product growth contributor in the wine category in just over a quarter since its launch. And we are seeing incremental growth from the expansion of our Wine & Spirits brands into international markets with particularly significant gains of more than 60% in international shipment volumes for our fine wine and craft spirits products. As with our Beer business, we continue to closely monitor the state of consumer and remain disciplined in our approach to ensure we balance both pricing and growth across our Wine & Spirits portfolio as economic conditions further evolve. That said, while consumers are reporting increasing concerns about the economy, these concerns have not yet translated into significant behavior change for beverage alcohol shoppers, particularly for our major brands. In total, beverage alcohol servings per capita in the U.S. have remained and are expected to remain stable with growth of 1% to 2% based on population growth expectations. Against that backdrop, we are encouraged by the continued strength of our high-end beer and Wine & Spirits brands in the first quarter of this fiscal year and remain confident in our ability to drive additional growth for both businesses over the medium term. To that end, we are accelerating our investments in digital capabilities to further support future growth. These investments will be focused on securing the talent and enhancing the technologies needed to further optimize our marketing efforts and reinforce our leading position in 3-tier e-commerce and DT sales as well as unlock value from enhancements to our procurement, supply chain management, plant operations and back office activities. Online beverage alcohol sales remain over 4 point times the pre-COVID rates and we are seeing great traction with our DTC and 3-tier e-commerce efforts, having outperformed the competition by 3.5 points in these channels over the first quarter. We are now planning additional investments as part of these efforts this fiscal year and expect the total impact of this digital business acceleration program to ultimately result in incremental earnings to be realized over the coming years driven by more effective marketing as well as more efficient supply chain, procurement, data and analytics and operations platforms. Garth will provide additional details in just a few minutes. Beyond the growth, we continue to expect from our businesses which will be further supported by our digital business acceleration program. We also continue to believe that our ownership position in Canopy represents a compelling opportunity in developing -- in a developing industry with significant long-term growth potential. Within that context, we think Canopy's focused on premiumizing its cannabis-branded portfolio to improve performance in Canada is appropriate. And we are also supportive of its efforts in the U.S. to strengthen the distribution of its emerging CPG brands and build a competitive THC ecosystem as Canopy continues to gain traction. Canopy's agreements with Acreage, TerrAscend, Wana and Jetty, position it to quickly scale operations across the U.S. upon federal legalization. We continue to support Canopy through our strategic relationship sharing our experience and capabilities to support the continued advancement of their U.S. strategy, specifically in the areas of commercial sales, marketing and operations. And as announced yesterday, part of our holding in Canopy's convertible debt will be transitioned into equity, which will reduce Canopy's debt while maintaining our share of equity ownership without putting additional capital at risk. On a separate note, earlier today, we also announced that our Board of Directors has approved a proposal to eliminate our Class B common stock. After an extensive review and analysis by the special committee and with the special committee's recommendation, our Board agreed that it is in the best interest of the company and all Constellation shareholders to eliminate the Class B common stock. Under the proposal, owners of our Class B common stock, which are primarily the Sands family, would convert those shares into Class A common stock and receive $64.64 per share in cash, which equates to a total amount of $1.5 billion. The transaction requires shareholder approval, including approval of a majority of the issued and outstanding shares of Class A common stock not held by the Sands family or their affiliates, executive officers of the company or Directors that also hold Class B common stock. Once shareholder approval is received, we expect that the proposal would deliver a number of corporate governance and other benefits, including the elimination of the higher vote Class B common stock, including the associated voting control of the Sands family and a reduction in the concentration of voting power; a simplification of the company's equity capital structure to better align the voting rights and interests of all shareholders; a broader appeal of our shares to a larger base of investors who prefer single voting class common stock structures; operating cost savings associated with executive salary and certain benefits as well as administrative savings from maintaining the Class B common stock. We expect the executive salary and benefits cost savings will be about $15 million to $20 million per year using the $17.5 million midpoint of that cost savings range and our current trading multiple of approximately 21x PE. That equates to roughly $300 million of value on a tax-effective basis. Other corporate governance benefits include a rotation of the lead independent Director position on the Board at the next available normal cycle opportunity. And finally, a shift to majority voting in uncontested elections from the current plurality standard for our Board of Directors and the adoption of a Board anti-pledging policy. We will be seeking the approval of shareholders at a special meeting, and a proxy statement, including all details of the proposal will be available ahead of that special meeting. In the meantime, the announcement we made this morning related to the proposal can be found on our company website, cbrands.com. And at this point, we will be unable to comment further or provide additional information on the proposal during today's call beyond what is available in that announcement. In closing, I once again want to recap the 3 highlights I shared earlier on our performance in the first quarter of fiscal '23. First, our beer business continued to achieve industry-leading share gains, driven by our high-performing Modelo Especial, Modelo Chelada, Corona Extra and Pacifico brands delivering overall strong financial results with double-digit growth for both net sales and operating income. Second, our Wine & Spirits business outperformed the U.S. Wine & Spirits category and tracked channels, particularly through the strong performance of our higher-end brands and also grew net sales in the quarter. And third, we continued to deliver against our established capital allocation priorities, including through the $1.3 billion return to shareholders and share repurchases through June and dividends for the first quarter of this year. We are now at over 90% of our $5 billion promised goal. We were very encouraged by the continued strength of our business in the first quarter of this fiscal year and remain confident in our ability to drive sustained growth over the medium term. And with that, I'd now like to turn it over to Garth, who will give you more detail of our financial results in the quarter. Garth? Garth Hankinson: Thank you, Bill, and good morning, everyone. Fiscal '23 is off to a great start. We're executing against our business strategy, and we're on track to achieve our targeted financial performance goals for the year. Our beer business achieved double-digit net sales and operating income growth, and our Wine & Spirits business is progressing as marketplace momentum accelerates for the portfolio. In addition, our strong cash flow results enabled us to accelerate and complete our share buyback as we repurchased 5.3 million shares for $1.3 billion through the first 4 months of our fiscal year. As a reminder, one of our key capital allocation priorities has been to return $5 billion to shareholders through a combination of dividends and share repurchases by the end of fiscal '23. To date, we've completed the share repurchase portion of this commitment well in advance of our year-end target. As such, we are now forecasting weighted average diluted shares outstanding of approximately 186.5 million for fiscal 2023, which includes share repurchases through June only. As is typical, since we do not know the timing and cadence of future share repurchase activity, any additional share repurchases have been excluded from our guidance assumptions. Now let's review Q1 fiscal '23 performance in more detail where I’ll generally focus on comparable basis financial results. Starting with beer. Net sales increased 21% primarily driven by shipment volume growth of over 17% from ongoing robust demand for our core portfolio and favorable price. As a reminder, we're seeing a favorable shipment volume overlap versus last year's Q1, which was impacted by supply shortages and missed shipping days as a result of severe weather events impacting Texas and Northern Mexico. Depletion growth for the quarter came in at nearly 9% driven by the continued strength of Modelo Especial and Corona Extra as well as the return to growth in the on-premise channel. Q1 shipments were generally aligned with cases depleted as distributor inventories remained at normal levels. The on-premise channel grew more than 30% in Q1 and now accounts for approximately 13% of our depletion volume versus 11% in Q1 fiscal 2022 when the on-premise channel continued to be somewhat affected by the pandemic. Moving on to beer margins. As expected, beer operating margin decreased 260 basis points to 40.2% primarily driven by the expected impact of inflationary headwinds, leading to increased COGS for transportation and material costs, including pallets, cartons, steel, corn and aluminum. Additional factors include higher depreciation and brewery costs associated with planned capacity additions at our Obregon production facility in Mexico. These headwinds were partially offset by the favor overlap from 2 items: one, fixed cost absorption related to increased production levels compared to last year's Q1 driven by the weather events I just mentioned; and two, decreased obsolescence primarily related to hard seltzers. On an absolute dollar basis, marketing investments increased versus prior year. However, due to favorable top line leverage, marketing as a percent of net sales decreased 40 basis points to 9% versus prior year. We continue to expect marketing as a percent of net sales to be in the 9% to 10% range for the year. For full year fiscal '23, we continue to target net sales growth of 7% to 9%, which includes 1 to 2 points of pricing within our Mexican product portfolio and operating income growth of 2% to 4%. This implies an operating margin of approximately 38% for the year. Throughout the remainder of the year gross margin will be negatively impacted as benefits from price and our cost savings agenda are expected to be more than offset by the following COGS headwinds. First, elevated inflationary pressures will continue throughout fiscal 2023 across numerous cost components but largely driven by aluminum, cartons, wood pallets and steel. In addition, we'll see increased logistic costs for fuel and freight rates for truck and route. Second, we're expecting incremental brewery costs driven by labor inflation in Mexico as well as increased head count and training expenses to support our continued capacity expansion initiatives at both Nava and Obregon. Third, as a result of these brewery expansion plans, the step-up in depreciation expense will continue as additional capacity is planned to come online throughout the fiscal year. Moving to Wine & Spirits. Q1 fiscal '20 net sales increased 2% driven by a combination of increased shipments and favorable price and mix. Q1 depletion growth was driven by double-digit contributions from Meiomi, the Prisoner brand family, High West and Casa Noble. Operating margin decreased 330 basis points to 19.6% as mix and price benefits, combined with a favorable inventory adjustment, were more than offset by higher COGS driven by inflationary headwinds, including higher material costs for grapes and glass, as well as increased transportation and warehousing costs. SG&A and marketing increased as a percent of net sales versus the prior year primarily driven by increased head count and marketing initiatives to support key growth areas of our business. For full year fiscal 2023, the Wine & Spirits business continues to expect net sales to decline 1% to 3% with an increase of 4% to 6% in operating income, implying operating margins of about 24% for fiscal '23. Despite unit Q1 margin results, we expect to achieve our Wine & Spirits margin goals for the year through a combination of the following initiatives that are primarily weighted to the second half of the year. We expect ongoing premiumization and mix improvement driven primarily by our fine wine business and the timing of the vintage transition for these products. We have planned incremental pricing actions beginning in the second quarter. A strong New Zealand vintage coming online is projected to drive volume and enhanced margins. And finally, we expect to see benefits from our ongoing cost savings initiatives. Now let's proceed with the rest of the P&L. This is a good point to provide additional detail regarding the digital business acceleration initiative that Bill outlined a few minutes ago. Constellation is already an emerging digital business today with impressive progress in key areas such as DTC, 3-tier e-commerce and digital marketing. The digital business acceleration effort will help to create a more cohesive digital strategy and is an entirely new way of doing business that is designed to enable us to become best-in-class initially in the areas that include procurement, end-to-end supply chain planning and marketing optimization. The implementation of our new SAP platform last year enabled a framework for us to proceed with this initiative, which is expected to add $35 million to $40 million in corporate expense this year. As a result, our initial corporate expense guidance increased from $230 million to a range of $265 million to $270 million. We expect to start to see some benefits from these investments later this year. Our fiscal 2023 EPS comparable guidance of $11.20 to $11.50 remains unchanged despite the lower share count. Corporate expenses as a percent of net sales remains at about 3%, which is at the level that had been trending during the SAP implementation. In fact, the Q1 increase in corporate expense of approximately $7 million was primarily driven by investment spending for our digital business acceleration initiative. You can expect to see the majority of the remaining fiscal 2023 spend for this project to occur in Q2. Comparable basis interest expense for Q1 increased slightly due to higher average borrowings, and we ended the quarter with a net leverage ratio of 3.2x, excluding Canopy equity earnings. During Q1, we entered into an agreement that amended and restated our senior credit facility. This resulted in an increase in our existing revolving credit facility from $2 billion to $2.25 billion and extended its maturity to 2027. In addition, we issued senior notes and subsequently repaid the 2018 3.2% senior notes and the 2013 4.25% senior notes that were coming due next year. We believe that this was the appropriate action to take in a rising interest rate environment. Moving to free cash flow, which we define as net cash provided by operating activities less CapEx. For Q1, we generated free cash flow of $562 million, which represents a 7% decrease versus prior year driven by a 73% increase in CapEx investments to support planned capacity expansions and related activities in Mexico. We continue to expect fiscal 2023 free cash flow to be in the range of $1.3 billion to $1.4 billion, which reflects operating cash flow in the range of $2.6 billion to $2.8 billion and CapEx of $1.3 billion to $1.4 billion, including investments targeted for Mexico beer operations expansion. In closing, our excellent performance and strong business fundamentals demonstrate that we are committed to generating net sales and operating income growth while returning value to shareholders. Our path to impressive Q1 results were paved by great execution in growing our core business and supported by investments to enhance our portfolio and operations. With that, Bill and I are happy to take your questions. Operator: [Operator Instructions] Our first question is coming from Bryan Spillane from Bank of America. Bryan Spillane : Just 2 questions for me. One is as we think about the -- assuming that the shareholder proposal gets approved and there's the $1.5 billion outlay, how would we finance that? And are there any offsets to offset the incremental cost of financing? And then second is just as we think about the incremental -- the accelerated investment in digital, should we think about that as being part of the kind of the cost base going forward? So is it a multiyear investment? Or you're just having a good year and you figured you'd spend -- you'd sort of pull forward some of the expenses. So really those 2 things, how we think about offsetting the incremental cost, I guess, of the $1.5 billion; and then how to think about the digital investments. Garth Hankinson: Yes. Thanks, Bryan. So I'll take those in that order. First, on the funding of the $1.5 billion. First of all, we're in a very enviable position given the strength of our balance sheet and given our investment-grade rating. We're -- obviously, given the timing of this proposal, we're still thinking through exactly how we're going to fund the $1.5 billion, but likely will include some new debt and may or may not include some of our existing debt that we have available to us under the revolver. So there will be more to come on that as we move forward. That being said, whatever we do, we do remain committed to our investment-grade rating, and we intend to remain within our targeted leverage range and can do so as we support this commitment. On the digital business acceleration cost, so -- this is -- this will be a multiyear program that's in place. What the spend will be in future years? We will work on that as we move through this year and into next. But this is not a pull forward per se, this will be incremental investment, and so you'll see more about that, as I said, as we move through this year and into next. Operator: Our next question is coming from Bonnie Herzog from Goldman Sachs. Bonnie Herzog: All right. So I guess the key question this morning that we're hearing from investors is on your full year guidance and why you maintained it despite the significant outperformance in Q1 and also thinking about the significant repurchases. So I guess we're all trying to understand your level of conservatism, especially considering it implies that your beer shipments only grow about 3% for the balance of the year despite what I think is pretty darn good momentum behind your brand. So what are we all missing? I mean maybe you guys could sort of lay out for us some of the key puts and takes to help us better understand this. Garth Hankinson: Yes, Bonnie. So Bill and I will probably try to tag team a little bit in response to your question. So I would say, first of all, Q1 was on our estimates for the quarter, keeping in mind, as we stated, as we entered the year that this year would be a bit lumpy just like last year was a bit lumpy as we've been overlapping the production issues we had last year. So you'll continue to see some of that lumpiness. For the balance of the year, I would say that we continue to expect that we're going to have strong depletions, and we will continue to have shipment growth that is in line with our long-term algorithm. So the business will continue very much going forward in a very strong manner. As it relates specifically to the guidance, I kind of alluded to this in my scripts, while we did get a benefit from the share repurchases, obviously, from retiring more shares and reduced share count, we also introduced today the incremental spend on the digital business acceleration initiative. And those 2 things kind of net out against one another. And for that matter, as we look again to the balance of the year, it's just a little bit too early for us to make any adjustments given that we're still monitoring macroeconomic conditions as well as what those economic conditions, including inflation, have on the consumer. Bill Newlands: Yes. The only thing, Bonnie, that I would add to that is I always try to look at what our depletion rate looks like and to make sure that you're seeing the consumer takeaway. And as we stated, we're gaining significant share in our beer business. We're gaining share in almost every sector of our Wine & Spirits business. Both of those were very positive within the quarter. And don't get confused or fuddled, if you will, by the lumpiness of the shipment timing because, last year, as we know, because of weather-related events, was a bit unusual. And so therefore, the overlaps in particular, quarters of this year will be a little different. I look at the depletions, and our depletions were very strong, yielding share-gaining performance within the market. More importantly, we are continuing to see strong consumer demand throughout the year. And certainly, the consumers continues to be interested with our business despite an understanding that there's -- it's going to be an interesting year relative to questions around inflation and around recession. But we remain very confident in the performance of our business, and I think it was reflected in the quarter we delivered. Operator: Your next question today is coming from Dara Mohsenian from Morgan Stanley. Dara Mohsenian: So maybe we could just take a step back and talk about how you think your business is positioned if we do move into a recession and a period of weaker consumer spending both looking at past cycles and what you've seen so far this cycle. And second, maybe just an update on June depletions. Have you seen any trade down impact on your business so far? So maybe first conceptual and then be a bit more concrete. What are you seeing near term? Bill Newlands: Sure. well, let's deal with a few facts that I think are very strong and supportive of our business. We are finding that 7 out of 10 shoppers who purchased beer have that as a planned purchase before leaving their home. I think that's very strong. It speaks very well to our business. We then look at a thing like buy rate. And buy rate, the way we discuss buy rate is equal to the number of trips times the spend that occurs during the trip. And that's actually up versus pre-pandemic levels and is actually accelerating in Q1 for beer versus the prior 3 months. I think those are very strong indications of the strength of our portfolio, particularly when you look at the share gains that both Garth and I have alluded to up to this point. June looks consistent with our yearly algorithm. I think it was another very solid month, and it's consistent with what our expectations are for the year, as we've said it earlier. So just to recap. Modelo continues to be on fire. We're continuing to see strong results in Corona Extra. Once we get over the supply chain issues in Pacifico -- you saw a very, very strong quarter in Pacifico. So our anticipation is that we are going to continue to see a very solid year in our beer business as the year progresses, recognizing there's a lot of unknown variables that are going to go on relative to the economy. Operator: Your next question is coming from Nik Modi from RBC. Unidentified Analyst: This is Philippe [indiscernible] on for Nik. Question on pricing, on beer pricing. You came in a little bit before expected and your 1% to 2% target for the full year. We are -- how are you thinking beer pricing will evolve in the balance of the year? And do you think the narrowing price gaps versus domestic beer could be a benefit, potentially accelerating your market share gains going forward as we get into a more uncertain macroeconomic environment? Bill Newlands: So our -- we've been very clear that our long-term algorithm on pricing is 1% to 2%. As you know, last year, we were slightly above that result. And frankly, we think that it is particularly important to keep the consumer in mind as we make choices around our pricing algorithm. Our current algorithm works very well for us. And it's fairly flexible. And the benefit of that approach is it does provide the flexibility as we watch and see how things develop over the course of the year. So what I can assure you of is we are closely monitoring what is going on both from an inflationary standpoint as well as pricing, and we'll be ready to adjust our approach if that proves to be necessary or appropriate. But what I would say is it's not going to change our long-term algorithm. We still believe that 1% to 2% over time is correct for our business and helps us maintain our consumer base, which ultimately, at the end of the day is what it's all about. Operator: Your next question is coming from Chris Carey from Wells Fargo Securities. Chris Carey: Just to start, Bill, just a clarification. You said that depletions are consistent with your yearly algorithm. Were you referring to the beer growth algorithm of 7 to 9 or the volume component within that algorithm? So that's just a clarification. And the main question is I hear you in response to the resilience of the consumer. I was wondering if you could just maybe frame consumer risk within your portfolio. For example, do you see relatively higher consumer sensitivity in Modelo versus Corona, given different demographic exposure? And maybe just offer some thoughts on how you could evolve your strategy, as you just noted, should you start to see a change in the consumer habits. Bill Newlands: Sure. So to answer the first question, it's both. Depletes and volume, we expect to be roughly equal over the course of the year. Because there is growth, shipments are always a little bit higher because you're working off a bigger base. So there's always a bit more shipment in any year because, unfortunately, we have a strong growth profile within our business. Premiumization rates, and I think this is an important one also relative to our portfolio, are continuing to hold. In fact, in beer, 59% of dollars are now in the high end. You remember just a few years ago, when we were predicting that we'd pass 50%. It's continued up to 59.5% as of this point in time, which is up 1 point -- 1.1 points versus prior year. You're also seeing similar activity in the wine business, where the premiumization that's occurring is continuing to occur there as well. All of those things speak very well to the sustainability of our growth profile for our business. And as we've said before, there's still plenty of room for growth within all of our franchises. But using Modelo as an example, Modelo is still growing substantially in a lot of secondary markets where there's a lot of distribution opportunity as well as gaining share in markets that have more sustained and long-term strength. So we're very comfortable that we have a long and sustained runway for growth across all of our brands, and certainly, the facts are backing that up. Operator: Our next question today is coming from Lauren Lieberman from Barclays. Lauren Lieberman: Great. So I guess I'm trying a few different questions. From an industry volume standpoint, Bill, you've spoken very clearly to the strength of your brand momentum in your portfolio. But industry-wide in beer, I mean my understanding is there's historically a pretty strong correlation between gas prices and beer consumption. And so I think some of the industry data that's out there or anecdotal has been that there has been a deceleration in industry volume in recent weeks. So I was just curious if you could comment on that. If you guys are not seeing that, if you think something different, if you don't think there's a relationship with gas pricing. I'd be curious that broader industry perspective would be helpful because I have no doubt that within that, your brands are in a great spot. Bill Newlands: Certainly, it's something that we're all watching. One of the benefits that you've seen in at historical times of recession or recessionary style trends is alcohol beverage tends to be an affordable luxury, and therefore, it tends to continue to be consumed during that window of time. Let me give you an exact fact around beer-drinking households. It holds an essential status for many, many consumers. In fact, if you look at 172 edible categories, beer ranks 15, about -- and therefore, what it says is the consumer is consistently wanting to continue to participate in this category. That doesn't mean that there won't be short-term impacts because of gas prices and other inflationary pressures. But overall, it tends to be a category that is -- that is a stable for a lot of people, and that's probably particularly true for our Hispanic consumer base, which, as you know, we over-index with that consumer base. So I think it speaks pretty well to our position at least of being able to work our way through a recessionary environment pretty -- in a pretty healthy way. Operator: Your next question is coming from Nadine Sarwat from Bernstein. Nadine Sarwat: Two questions for me, if I may. The first, could you just help us understand exactly why the Q1 price mix was above that longer term 1 to 2 that you mentioned? Is that the phasing of pricing? Is there a mix component we're not taking into account or perhaps some distributors taking pricing? Color on that would be appreciated. And then my second question on Canopy Growth. I appreciate your comments in the prepared remarks that you remain committed to that investment. But the company does continue to lose share in Canadian recreational cannabis, continues to face challenging -- challenges reaching profitability. U.S. scheduled legalization is looking increasingly less likely, at least in the short term. So could you maybe provide more color as to what gives you conviction that this business can meaningfully improve in the long term? Bill Newlands: Sure. Let me take the first part of that because you are correct. If you look at the data, it certainly shows that the pricing scenario at the moment is above the 1 to 2 algorithm. There's a number of things involved in that. One is it only reflects tracked channels. So that's a piece of it. It is partly mixed. As you see different sizes and different products and different subcategories within beer affecting it, you see different scenarios. It's partly retailers making choices about hitting specific price points, which, in some instances, will drive the percentage higher but doesn't reflect the change in our pricing strategy. As I said earlier, I think this all goes back to our algorithm being particularly important and particularly flexible in our ability to see what's happening in the market and adjust as necessary as part of it. But all of those elements weigh into what is certainly some higher pricing than what we have noted in our words. Garth Hankinson: Yes. And on the Canopy question, there's no doubt that over the past couple of years, Canopy has faced a number of headwinds. That being said, we remain very, very positive on the category and very optimistic for Canopy. The reason we feel that way, right, is that, number one, in Canada, we believe that the Canopy team, through its recent announced restructuring programs, have a renewed focus on driving the premium end of that business, which is profitable and that the team up there is on a path to profitability in the near term. In the U.S., we continue to see very good green shoots for the category in general in terms of consumer consumption. Whether you look at retail sales or you look at state-by-state tax income associated with cannabis sales, both are growing very, very quite nicely showing that the consumer is adopting the category. We also really like the approach that the Canopy team has taken in the U.S. If you look at some of the -- some of the options that Bill outlined in his prepared remarks, Canopy's position with Acreage and TerrAscend and Jetty and Wana have them very well positioned to take advantage of the U.S. market once it does open up and once legalization occurs. So that's why we remain -- that's why we continue to have conviction on the category. Operator: Our next question is coming from Rob Ottenstein from Evercore ISI. Rob Ottenstein: Great. I just wanted to follow up a little bit on the pricing question. And that is if you can talk a little bit about your views about what appears to be happening based on channel checks, trade checks that retailers are essentially taking or increasing their margin given the much higher price increases for other brands and just the fact that distributors, right, have pressures in terms of their costs, and they're likely to want to see higher prices, so if you could talk maybe a little bit about that dynamic. And I think we all understand the long-term algorithm, why that makes sense, but these are extraordinary times. Bill Newlands: They are extraordinary times. And I think the one thing that's important, Robert, in extraordinary times is to remain balanced, sensible and not sort of get caught up in the world wind at the moment and doing things that what I would describe as anti consumer. So that's why we are, again, saying that we are going to be judicious as to how we look at this, balancing the understanding that there are a lot of pressures that our consumers and all consumers are under because of inflationary pressures in the market. You have seen some increase in pricing as one of the prior callers asked that is being taken either at the distributor level or at the retail level to hit specific price points, and it's being reflected. So we're trying to walk the delicate line of what's appropriate, what is -- what can we do to reflect and address the rising costs that we are all facing while keeping our consumer base. We think that's in the long-term interest not only of our company but for the category as well. And as I said, we are going to be very judicious, we are watching it very closely. And as I said earlier, not to repeat myself, but we do have a very flexible algorithm that allows us to address questions in real time, and I can assure you we keep our eye on it almost on a daily basis. Operator: Your next question is coming from Andrea Teixeira from JPMorgan. Andrea Teixeira: So as we all listen to what you said in terms of like how you exit consumption and depletions, it sounds as if you are -- you're still quite confident as you exit the quarter and enter the Q2, and correct me if I'm wrong on the beer side. So given you cast the guidance for the balance of the year, should we summarize and interpret that you're monitoring how volumes would flow through as you're shipping more than depletion and, at this point, you're helping wholesale that retailers take a larger share of the profits at this point? But if everything goes well in the summer, goes as expected, perhaps you could take pricing as you go into the fall, which is a typical pricing point, a pricing action point. And if you can comment on how you're going to balance because your low single-digit implied shipment volume for the balance of the year? Obviously, it [discouraged] investors. Is there anything we should be noting in terms of like the level of conservatives that you're assuming now? Or is that just a function of again, looking at how your typical consumer will behave, given higher oil prices? Bill Newlands: So let me try to -- hopefully, I'll answer most of those here as I try to answer it. First of all, let me go back to something that I said in my prepared remarks, which is, while it looks like we shipped a lot more than we depleted in the first quarter, that is purely because of the overlap of last year where there was weather events. And the absolute -- on the beer side, the ships and depletes in the absolute were roughly the same, and we expect that to remain over the course of the year. As Garth noted a little earlier, it is going to be a little lumpy because we had a time in the first quarter where we went against weather-related activities. We obviously, in the back half of the year went against times when we were rebuilding the inventories for last year. So it will just be a bit of a lumpy year. Relative to pricing, most of our pricing, as we look at how we do it, is roughly 60% in the first half and 40% in the second half. That's just the way it has worked consistently. So we do have pricing moments. And as you know, we look at it SKU by SKU, market by market. We don't do broad-based pricing answers if it is a very micro view of pricing and how we look at it. So again, that gives us the opportunity to see how the year is developing, what opportunities exist in the marketplace. And we look at that, as I said, on an ongoing basis. So we think that, that remains the best way for us to proceed. It's worked very well for our company over the course of time, and we think it's going to continue to serve us well going forward. Operator: Our next question is coming from Bill Chappell from Truist Securities. Bill Chappell: So kind of the same questions that you've gotten on elasticity and market environment and that on beer but applied to why. Kind of any thoughts or what you're seeing or would expect to see kind of how this environment affects wine sales. And when I think of that -- I know there's as you said, affordable luxury but just wondering if you're seeing consumers go from $25 wine down to $20 wine or if there's a net benefit for the Woodbridge franchise, as more and more people are looking at popular price wine. Just didn't know if you were seeing that or expect to see that and how that would affect your outlook? Bill Newlands: Sure. You bet. So in wine, and I quoted the beer example earlier, in wine, the entry levels of the high end are, frankly, the most robust growth profiles, and that's sort of in that $11 to $25 range. That represents about 28% to 29% of total dollars. And that's also, interestingly enough, it's the exact same number, 1.1 points versus a year ago. I quoted the beer one was also 1.1 points a bit earlier, but that's also up 1.1 points. And of course, that's perfect for us because we've got brands like Kim Crawford, Meiomi and Unshackled and various other brands that fit right into that price point. So therefore, it's not surprising that those brands are doing extraordinarily well. As I said earlier, our premium wine and our fine wine and craft spirits businesses had a very strong quarter with strong depletion growth of 8% and 16%, respectively. So we had a very strong start in wine. And certainly, the premiumization that you're seeing continues. It would be a different answer if we talked about mainstream wine where, frankly, it's been more challenged, even though we're very pleased that our Woodbridge brand is gaining share in a challenged subcategory. So overall, it's very similar in style to what I responded earlier in beer, and we're quite pleased that it is. Operator: We reached end of our question-and-answer session. I'd like to turn the floor back over to Bill for any further closing comments. Bill Newlands: Great. Thanks again. Thank you all for joining our call today. As you could hear, we're off to a very good start to the year. We delivered excellent operating performance, underpinned by strong business fundamentals which provides us with great momentum as we head into our key summer selling season. Consumer demand and takeaway especially for our beer brands, remains robust as I've stated before, and we're well positioned to achieve our targeted financial goals for the year. Overall, we've demonstrated again that we're committed to pursuing our strategic growth initiatives while returning value to our shareholders. In closing, I'd like to wish everyone in the United States, a happy fourth of July holiday weekend and hope your celebrations with your friends and family include some of our fantastic beer, wine and spirits products. Thanks again, everybody, and have a safe and healthy summer. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Operator: Hello, and welcome to the Constellation Brands Fiscal Year 2022 Q4 Full Year Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Patty Yahn-Urlaub, Senior Vice President, Investor Relations. Please go ahead. Patty Yahn-Urlaub: Thanks, Kevin. Good morning, and welcome to Constellation's Year-end Fiscal '22 Conference Call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors which may impact forward-looking statements we make on this call. Before turning the call over to Bill, similar to prior quarters, I would like to ask that we limit everyone to 1 question per person, which will help us to end our call on time. Thanks in advance, and now here's Bill. Bill Newlands: Thank you, Patty. Good morning, and welcome to our fiscal '22 year-end call. Before I get started this morning, I'd like to comment on the announcement made earlier this week relating to the proposal from the Sands family to declassify Constellation's dual share class structure. According to the family's filing, the proposal brings significant benefits that will accrue to the company and its shareholders, including increasing market demand from investors who prefer single-class structures. The proposal is under consideration and will be negotiated explicitly by the Special Committee of our Board of Directors, and any agreement reached with the Sands family will require the approval of that Special Committee as well as our full Board of Directors. In addition, pursuant to the terms of the proposal, it would require the approval of holders of a majority of our Class A common stock that do not also hold shares of our Class B common stock. I'd like to remind everyone that the Sands family proposal was not made in connection with a corporate transaction. Constellation does not intend to comment further on the proposal unless and until a definitive agreement is reached, the proposal is abandoned or otherwise deemed advisable in connection with any further public disclosure by the Sands family. With that, let's proceed with the discussion of our excellent results and our guidance for fiscal '23. As I reflect on our performance for fiscal '22, I'm extremely proud of how our team pulled together to deliver a year of double-digit organic net sales growth and strong cash flow generation. Our team accomplished this while battling through year 2 of the pandemic, including various supply chain challenges, adverse weather events, rising inflation, rapidly shifting consumer preferences and a host of other issues in the surrounding environment. Through it all, we stayed true to who we are and remain laser focused on our consumers and building brands that people love. We launched our consumer-led innovation while continuing to invest in future capabilities needed to win long-term. We continued to deliver on our commitments to return value to shareholders and to serve the interest of all stakeholders by making a positive impact on our communities and the environment. In fact, earlier this morning as part of our ongoing commitment to environmental stewardship, we announced our new targets to reduce greenhouse gas emissions by 15% by fiscal '25 and to restore 1 billion gallons of water withdrawals from critical watersheds and improved water accessibility in disadvantaged communities where we operate in each case by fiscal '25. With that as a backdrop, I'd like to frame up what we believe are key takeaways from our performance in fiscal '22 as we head into our new fiscal year. First, our strong overall performance continues to be headlined by our Beer business, which delivered its 12th consecutive year of volume growth. Our beer portfolio led by our Modelo and Corona brand families posted net sales growth of 11% and added 30 million cases of high-end growth, extending its leadership position as the #1 high-end beer supplier and the #1 share gainer across the U.S. beer market. Second, our Wine & Spirits business delivered strong organic net sales growth of 9% and solid gross margin improvement for the fiscal year. Our enhanced focus on consumer-led premiumization in Wine & Spirits continue to yield benefits as our high-end brands outpaced the overall U.S. Wine & Spirits category primarily driven by Kim Crawford, Meiomi and the Prisoner. Third, we continue to execute against our stated capital allocation strategy, returning nearly $2 billion to shareholders in the form of share repurchases and dividends in fiscal '22. We continue to demonstrate this commitment with this morning's announcement of a $500 million accelerated share repurchase program, which, when completed, will bring us to about 75% of our $5 billion goal. Our continued strong performance in fiscal '22 and the investments we continue to make in our core business provide a nice springboard for another successful year ahead. Now let's dive a little deeper into our business performance in '22 and our outlook for the year ahead. One outlook of our success -- one hallmark of our success has been our beer business over the years has been the strength and continuity of leadership. Earlier this year, we announced that Jim Sabia assumed the role of President of our beer business. As many of you know, Jim has played a key role in the success of our beer business for many years, and we look forward to further building on the momentum under his leadership. Jim succeeds Paul Hetterich, who will continue to work with our beer operations team in Mexico to support our ongoing brewery projects in Nava and Obregon as well as the construction of our new brewery in the state of Veracruz. Paul has been a driving force behind the success of our economy, including our beer business for more than 35 years. I look forward to continuing to work with Paul, Jim and the rest of our beer team to accelerate traction of our high-performing beer portfolio in fiscal '23. There are several industry trends that provide a solid platform for our portfolio growth in the year ahead. Total beverage alcohol servings per capita are expected to remain stable with growth of about 1% to 2% annually based on population growth expectations. Premiumization in the beer category is projected to continue with the high-end segment taking share from the mainstream segment. Mexican imports, primarily driven by the Constellation portfolio, are expected to continue to drive traditional beer growth and will continue to be a key driver of gains in the overall beer segment. Significant growth is projected in the flavors category, including seltzers, flavored beer, RTD spirits, wavered malt beverages with all categories exhibiting strong future growth prospects. The on-premise segment has rebounded and is expected to continue to recover to drive incremental category growth. And finally, 3-tier e-commerce and digitally influenced sales have proven sticky for beer with revenue and share growing significantly. In fact, this channel is forecasted to deliver over-indexed growth relative to other channels. Each of these trends, combined with Hispanic demographic tailwinds that work in our favor, either aligns with the core strengths of our beer business, or our areas where we're investing to build capabilities needed to more fully compete and win. We have one of the most focused and highly efficient portfolios in the industry with a long runway for growth ahead. Our inventory position has been rebuilt, and we have plans to invest aggressively behind our brands in fiscal '23. We also got some exciting new consumer-led innovation on the way. Modelo Especial is the #2 beer brand in dollar sales in the country and has significant distribution runway over the medium-term to facilitate mid- to high single-digit total annual volume growth in the off-premise. Modelo Especial currently under-indexes with non-Hispanic consumers, but have strong momentum in group household penetration, 7% to 20%. I wish it was 70, but it was 20 with these consumers in the past 2 years, yet there's still significant opportunity to close the awareness gap in order to drive further household penetration. For reference, Modelo Especial currently has only 80% of the household penetration of Corona Extra. We believe increasing total market penetration for Modelo Especial to Corona Extra levels will enable access to more than 2 million incremental consumers. Modelo Especial is the #5 draft brand in the entire category, yet it only has 11% national distribution. This distribution opportunity, along with the velocity the brand delivers, makes Modelo Especial draft our biggest on-premise priority. In the F&B space, our Modelo Chelada brand family has become an important growth contributor to our portfolio as the #1 Chelada in the U.S. beer market. For Modelo Chelada, we're forecasting double-digit CAGRs in the medium term driven by extended channel distribution with new pack sizes, formats and flavors. Current awareness levels from Modelo Chelada are low relative to other flavor categories and large competitors. We expect to improve awareness and accelerate growth of Modelo Chelada through maximizing social and digital media investments to broaden our demographic reach to general market consumers as well as Spanish language TV to stay connected to core Hispanic consumers. Within our Chelada lineup, we're aiming for additional growth for a product line that grew over 30% last year, has tripled in size over the past 5 years and where we own almost 50% of the market nationwide. In fiscal '23, we're introducing a 12-ounce, 12-pack of Limón y Sal and a new Chelada flavor, Naranja Picosa, an orange and chili flavor. We're also extending the Modelo brand into new spaces to bring authentic Mexican flavor to both lighter beer styles and favored cocktail-inspired beer. Modelo Oro is a premium, sessionable light Cerveza with low-calorie and carbs rolling out in 3 test markets, Charlotte, Fresno and Houston. This is a full-flavored beer that fits an active lifestyle. Another product aimed at the low-calorie crowd is Modelo Cantarito-Style Cerveza, a beer with fruit juice that mimics a popular Mexican beverage. It's rolling out in Atlanta, San Diego and Arizona and celebrates the strong Mexican culture and heritage we see throughout the U.S. Shifting gears. We're excited by the resurgence of Corona Extra, which continues to be one of the most loved brands in the U.S. beer market. While modest growth is projected for Corona Extra in fiscal '23, this brand has overindexed brand equity, indicating higher growth potential, both for the master brand and broader brand family, including younger and multicultural consumers, where we see significant opportunity to increase buy rates. Corona Extra also has a fairly high household penetration, yet it still lags behind some large competitors. Distribution opportunities also exist for Corona Premier as there are still significant effective distribution gaps versus Corona Extra. And while buy rates continue to grow for Corona Premier, it still trails behind competing brands, indicating a significant opportunity to increase velocity. Premier is currently underdeveloped in the can format relative to its competitors, as experience indicates that cans are the preferred format for light beer drinkers. And we see a significant unlock with the launch of new packages and format sizes. Finally, consumers have embraced Corona Premier in the on-premise, and our craft focus this year is designed to accelerate that trend. For the Pacifico brand, we're forecasting 10% to 15% total annual volume growth in the medium term from distribution alone. We're prioritizing growth in key DMAs for Pacifico to expand off-premise points of distribution in key cities, particularly in the West and Midwest regions of the country, which will be supported by digital media to reach target legal drinking age Gen Z consumers. We'll also activate consumer and customer-specific national accounts retail programs as well as steel marketing and sponsorship to support targeted investment markets. Pacifico had the hottest draft volume trend in the category during the last 52 weeks, followed closely by Modelo. That trend, along with planned unique activations, positions Pacifico to continue to gain awareness with consumers. We've been increasingly focused on upping our game in the spirits-based RTD space with unique and compelling new brands. Last quarter, we announced a new agreement with the Coca-Cola Company for the U.S. market to create a new to state-of-line of spirit-based ready-to-drink cocktails using the well-loved and fast-growing FRESCA brand. FRESCA mix will debut this fall in bottled strips and tequila Paloma labels. In support of our collective fiscal 3 portfolio initiatives, we will continue to leverage our efficient sponsorship of UFC, the college football playoffs as well as numerous NFL, NBA and MLB teams. You'll see a significant increase and media investments to drive sustained awareness and consumer demand. Overall, we plan to recruit new drinkers through advertising, investments in digital media and localized programming. In addition, our portfolio initiatives will be enabled by increasing adoption of our Shopper-First Shelf approach, which continues to drive results and gain traction. We completed 14,000 shopper-first shelf sets last year, our highest total to date. As you can see, our beer portfolio is well positioned to capitalize on compelling category and consumer trends by leveraging our core brands' competitive advantages for existing and new platforms to deliver our medium-term net sales growth target of 7% to 9%. Now let's move on to our Wine & Spirits business. Despite the confluence of factors impacting this business in fiscal '22, including a major distributor transition, migration to SAP, inflationary headwinds and COVID related to logistics and supply chain challenges, this business delivered strong organic net sales growth of 9% and solid gross margin improvement for the year. Marketplace performance for our higher-end brands continued to outpace the overall U.S. Wine & Spirits category primarily driven by Meiomi, Kim Crawford and the Prisoner Wine Company. And our increased focus on our higher-end price segments yielded benefits as our fine wine and craft spirit portfolio achieved double-digit net sales growth driven by the Prisoner Wine Company and High West. Our innovation efforts also produced excellent results with growth contributions coming from Meiomi Cabernet Sauvignon, Kim Crawford Illuminate Sauvignon Blanch which together both held the top 2 slots among new high-end products introduced over the last 2 years as well as the Prisoner [Indiscernible] extensions, High West ready-to-serve packed and Woodbridge's buttery chardonnay in 3-liter box. Heading into fiscal '23, our strategic focus includes commitment to continued premiumization, margin expansion, accelerated growth in DTC channels and continued growth in our international business. Our innovation strategy will be focused on prevailing consumer trends of premiumization, digital, betterment, convenience, sustainability and enhanced flavor profiles. We have a strong innovation pipeline planned for the coming year, which includes the launch of SVEDKA Gin, Meiomi Red Blend, Kim Crawford, [T-Wine Spritz], Unshackled Chardonnay and Pinot Noir and [Indiscernible] combo ready-to-serve cocktails. Today, we announced 2 small additions to our Wine & Spirits portfolio to complement our premiumization efforts in wine with Constellation's ambition to be the #1 player in fine wine and among the top 5 in ultra-luxury and icon wines. We have acquired the highly acclaimed Oregon wine brand, Lingua Franca. This demonstrates our commitment to building a strong omnichannel business that includes category leadership in DTC and 3-tier eCommerce while building our fine wine portfolio with a diverse collection of best wines from top wine regions around the world. We also acquired the remaining portion of Austin Cocktails, which began in 2018 as Constellation Ventures focus on female founders. Austin Cocktails is a leader in the fast-growing premium RTD segment of the U.S. beverage alcohol market. It currently is distributed in 28 states and posted depletion growth of 135% in calendar '21 as RTD trends continue to rise to popularity among consumers. Overall, we expect fiscal '23 to be a dynamic year in our Wine & Spirits business. A tighter focus on higher-end brand strengthens the business and strategically positions it for future success. Before I wrap, I'd like to provide a few thoughts on our investment in Canopy Growth. We continue to believe that the cannabis market represents a significant long-term growth opportunity. and we're encouraged by the work Canopy is doing to further sharpen its strategy, rightsize its operating expense structure and capital investments and achieve profitability in Canada while strengthening its competitive positioning in the U.S. In their most recent quarterly results, Canopy maintained the #1 share position in premium flower products in Canada and drove record performance for its BioSteel and Storz & Bickel product lines. We are encouraged by recent Canadian Government changes to beverage equivalency regulations, allowing consumers to purchase cannabis beverages in greater quantities. And in the U.S., Canopy's THC strategy is anchored by strategic relationships with 2 profitable MSOs, Acreage and TerrAscend, both of which are positioned in high-growth northeastern markets. Canopy continues to progress their U.S. THC strategy by establishing a scalable footprint, best-in-class products and national distribution networks required to unlock the U.S. market upon federal legalization. In closing, I once again want to thank our team as well as our valued distributors and retailers for your efforts in delivering another strong year of performance, and we're just as excited about our prospects for growth in the year ahead. Our Beer business, led by our core iconic brands and consumer-led innovation, is poised to continue extending its leadership position in the high end of the U.S. beer market. Our continued focus on premiumization in the Wine & Spirits business is producing results, and we have plans to further focus our Wine & Spirits portfolio towards the higher end in fiscal '23. We remain committed to our previously stated capital allocation strategy, and we remain on track to deliver our $5 billion commitment by the end of fiscal '23. And finally, I'd like to leave you with this. We operate in a very dynamic and seemingly ever changing environment. But over the years, one thing has remained constant. IRI recently came out with its annual rankings of CPG growth leaders, and Constellation was recognized for being one of the top performers yet again. In fact, Constellation has been recognized as an IRI growth leader more than any other CPG company in our peer set over the last 10 years. That's something we're extremely proud of, and we look forward to continuing to keep this momentum going into our new fiscal year. And with that thought, I would like to turn it over to Garth, who will review our financial results in '22 and our financial focus for '23. Garth? Garth Hankinson : Thank you, Bill, and good morning, everyone. Fiscal 2022 marked another year of solid financial performance and shareholder value creation despite a myriad of headwinds forming our fortitude and resiliency. Our strong operating results and powerful cash flow generation allowed us to return almost $2 billion in capital to shareholders for the year. Additionally, as Bill mentioned, this morning, we announced that we are entering into an accelerated share repurchase, or ASR agreement to repurchase $500 million of shares during Q1 of fiscal 2023. Please note that the ASR agreement constitutes the $500 million share repurchase referenced in this morning's earnings release. Once we complete the ASR in Q1, we will be approximately 75% of the way toward achieving our goal of returning $5 billion to shareholders by the end of fiscal 2023. More on fiscal 2023 in a minute, but first I want to review full year fiscal 2022 performance in more detail, where I'll generally focus on comparable basis financial results. Starting with beer. Net sales increased 11%, landing in the upper end of our previous guided range driven by shipment growth of approximately 9% and favorable price, which, as expected, landed slightly above our typical 1% to 2% range. These tailwinds were partially offset by unfavorable sales mix primarily driven by a shift in package types and the return of on-premise draft SKUs. Depletion growth for the year came in at nearly 9% driven by the continued strength of Modelo Especial and Corona Extra as well as the strong return to growth in the on-premise channel. On-premise volume accounted for approximately 11% of the total beer depletions during the fiscal year and grew strong double digits versus last year. As a reminder, the on-premise accounted for approximately 15% of our beer depletion volume pre COVID and was only 6% of our depletion volume in fiscal 2021 as a result of on-premise shutdowns and restrictions due to COVID-19. When adjusting for 2 extra selling days in the year, the beer business generated approximately 8% depletion growth. As previously guided, cases shift continue to exceed cases depleted during the fourth quarter, which resulted in distributor inventories returning to normal levels at fiscal year-end. Moving on to beer margins. As expected, beer operating margin decreased 110 basis points versus prior year to 40%. Benefits from favorable pricing, marketing as a percent of net sales and mix were more than offset by unfavorable costs. The increase in COGS was driven by several headwinds that included the following: first, the previously announced obsolescence charge of approximately $80 million due to excess inventory of our hard seltzer SKUs resulting from a slowdown in the overall category; second, increased brewery costs driven by incremental head count, labor inflation in Mexico and increased spend related to capacity expansion; third, increased material costs due to rising commodity prices and inflationary headwinds that, on average, landed in the mid- to high single-digit increase range, predominantly driven by wood pallets, cartons, steel, corn and aluminum. Please note that this range includes the impact of hedging where possible. And lastly, step-up in depreciation expense, largely due to the incremental 5 main hectoliters at Obregon completed in early fiscal 2022. These comp headwinds were partially offset by favorable fixed cost absorption driven by increased production levels in fiscal 2022 versus last year. On an absolute dollar basis, marketing investments increased versus prior year. However, due to favorable top line leverage, marketing as a percent of net sales decreased 40 basis points to 9.2% versus prior year. Moving to Wine & Spirits. Net sales declined 19% as shipments declined approximately 34%. Excluding the impact of the Wine & Spirits divestitures, organic net sales increased 9% mainly driven by shipment growth of nearly 3%, favorable mix, increased pricing and small tainted bulk wine sales related to the 2020 wildfires. Organic shipment growth was largely driven by Meiomi, Kim Crawford and the Prisoner partially offset by a decline for some of our key mainstream brands. Depletions declined approximately 6%, mainly driven by SVEDKA, Robert Mondavi Private Selection and Woodbridge. These declines were partially offset by the robust growth of our higher-end brands, led by the Prisoner Wine Company of 16%; Meiomi and High West, up 13%; and Kim Crawford, up 9%. Shipment growth was ahead of depletion growth for the year, mostly reflecting impacts from our distributor transition. During the coming year, we expect to rightsize inventory levels in the business. Operating margin decreased 180 basis points to 22.7% as mix benefited from the divestiture and favorable price were more than offset by increased marketing and SG&A spend as a percent of net sales and increased costs. Higher costs were driven by increased freight and warehousing costs partially offset by net favorable fixed cost absorption, lower break raw materials and cost savings initiatives. Marketing and SG&A as a percent of net sales increased versus the prior year largely due to a loss of top line leverage resulting from the divestitures. Now let's proceed with the rest of the P&L. Fiscal 2022 corporate expense came in slightly higher than our previous guidance, finishing at approximately $238 million, up 4% versus last fiscal year. This increase was primarily driven by higher consulting, T&E spend and increased depreciation. These headwinds were partially offset by a decrease in compensation and benefits and a favorable foreign currency impact. Interest expense for the year decreased 8% to approximately $356 million primarily due to lower average borrowings partially offset by higher weighted average interest rates. Our full year comparable basis effective tax rate, excluding Canopy equity and earnings came in at 17.5% versus 18.2% last year primarily driven by a higher level of stock-based compensation benefits. Effective tax rates on our 4 businesses came in lower than expected during Q4, driving tax rate favorability versus our previous guidance. Moving to fiscal 2022 free cash flow, which we define as net cash provided by operating activities less CapEx. We generated $1.7 billion of free cash flow, which reflects strong operating cash. CapEx totaled approximately $1 billion and was in line with our most recent guidance. This included approximately $850 million of CapEx for our Mexico beer operations expansion. Pivoting to our full year fiscal 2023 P&L and cash flow targets. For fiscal 2023, we expect comparable basis diluted EPS to be in the range of $11.20 to $11.50, which excludes Canopy equity and earnings. For fiscal 2023, the beer business is targeting net sales growth of 7% to 9%, reflecting 1 to 2 points of pricing benefit within our Mexican product portfolio, which is in line with our typical pricing strategy and operating income growth of 2% to 4%. This implies operating margin to approximately 38%. As previously discussed, the implied decline in operating margin is predominantly driven by gross margin compression as benefits from price and our cost savings agenda are expected to be more than offset by the following COGS headwinds. First, we are expecting elevated inflationary pressures to continue throughout fiscal 2023 and estimating inflation on the commodity spend component of raw and packaging materials to land, on average, in the high single-digit to low double-digit range, including the impact of hedging where allowed. These significant inflationary pressures are expected across numerous cost components but largely driven by aluminum, cartons, wood pallets and steel. Second, similar to fiscal 2022, we are expecting incremental brewery costs driven by labor inflation in Mexico is estimated to range between 5% and 6% as well as incremental head count and training expenses to support our continued capacity expansion initiatives. Third, as a result of these brewery expansion plans, we are estimating a step-up in depreciation expense as additional capacity is planned to come online throughout the fiscal year. For fiscal 2023, we are targeting total beer segment depreciation expense to approximate $295 million or an increase of approximately $45 million. And finally, we expect margin headwinds related to incremental logistics costs in fuel and freight rates for both rail and truck, which is expected to drive an increase in the low to high single-digit range. As previously stated, we expect to execute against our aggressive cost savings agenda to help partially offset these headwinds, along with expected favorable fixed cost absorption driven by increased production models. As it relates to beer marketing spend for fiscal 2023, we expect marketing as a percent of net sales to land in the 9% to 10% range. Shifting to Wine & Spirits. For fiscal 2023, the Wine & Spirits business is targeting net sales to decline 1% to 3%. While this range is outside our medium-term growth goal for the business, it is an anomaly driven by the significant overlap we have from our distributor transition as well as revenues associated with sales of smoke-tainted bulk wine. Both are anticipated to be onetime in nature, and thus, we do not expect them to be repeated in fiscal year 2023. Excluding these impacts, we expect an underlying Wine & Spirits business to return to its targeted goal of 2% to 4% net sales growth next fiscal year. On the bottom line, we expect operating income to increase in the 4% to 6% range. This implies operating margin to approximate 24.5%, which represents almost 200 basis points of margin expansion. This margin expansion reflects benefits from price, mix and cost saving initiatives to help more than offset significant COGS inflation headwinds mostly related to freight and packaging. Cost saving initiatives include optimizing the Appalachian mix across our portfolio and decreasing the weight of our glass bottles, which also has positive environmental impacts. This is a good spot to update everyone on our Wine & Spirits operating margin expectations in the medium term. Since we provided original targets back in 2019, the operational environment has changed considerably. Inflationary pressures have got significantly worse, driving increased freight and warehousing costs in fiscal 2022 and are expected to continue well into fiscal 2023. Additionally, while we continue to remove stranded costs from the business, we strategically decided to reinvest more of these savings back into the areas of businesses that are driving growth. Specifically, in DTC, e-commerce, our fine wine and craft spirits portfolio and consumer-led products that are fueled by category tailwinds. As such, we've updated our operating margin goal to reflect these impacts and now expect medium-term operating margins to migrate to a range of 28% to 29% and EBIT margins at approximately 30%, reflecting a leading margin structure for our industry. Before we move on to guidance for the rest of the P&L, I'd like to highlight the new additions to our wine spirit portfolio that Bill mentioned earlier. As part of the evolution to the high end, we acquired Lingua Franca as well as the remaining interest in Austin Cocktails from our ventures portfolio, 2 businesses positioning categories with significant growth tailwinds behind it. From a finance perspective, these transactions collectively, along with My Favorite Neighbor, which was fully acquired in fiscal 2022, were almost entirely self-funded through the sale of one of our successful venture investments, which generated a significant return on investment. Other fiscal 2023 guidance assumptions include the following: corporate expenses to approximate $230 million, interest expense to be in the range of $350 million to $360 million and a comparable tax rate, excluding Canopy equity earnings of approximately 20%. The increase in our tax rate is mainly driven by a lower level of anticipated stock-based compensation benefits versus fiscal 2022. Rounding up the P&L, noncontrolling interest is expected to approximate $40 million and weighted average diluted shares outstanding are targeted at approximately $198 million. This share count assumes we execute a $500 million of share repurchases in Q1. We plan to repurchase additional shares throughout the remainder of the fiscal year. However, we do not know the timing of cadence, and as such, these expected share repurchases have been excluded from our guidance assumptions. We will continue to update our outstanding shares accordingly when we report quarterly earnings throughout the fiscal year. Additionally, this EPS guidance range does not reflect a prolonged impact from the volatility associated with the ongoing headwinds we've been experiencing on fuel prices and other commodities as the sustained impact of the recent geopolitical events remains unclear. Thankfully, we have no employees who live or work in Russia or Ukraine, and we have minimal commercial disclosure to this part of the world. That said, our thoughts and prayers are with those being impacted by this growing humanitarian crisis, and we wish for a quick resolution to this conflict and return to peace in the region. Turning to cash flow. We expect fiscal 2023 free cash flow to be in the range of $1.3 billion to $1.4 billion, which reflects operating cash flow in the range of $2.6 billion to $2.8 billion and CapEx of $1.3 billion to $1.4 billion, including approximately $1.2 billion targeted for Mexico beer operations expansion. To wrap up, I'd like to reiterate that our capital allocation strategy remains unchanged. In fiscal 2022 alone, our strong operating results and powerful cash flow generation capabilities enabled us to return almost $2 billion in capital to shareholders as part of our overall goal of returning $5 billion by the end of our fiscal 2023. Our capital allocation priorities augment our organic growth strategy to enable strategic reinvestment where we see category tailwinds. We believe this strategy, combined with excellent execution and returns to shareholders, positions us to be a top-tier shareholder return generator for many years to come. With that, Bill and I are happy to take your questions. Operator: [Operator Instructions] Our first question today is coming from Lauren Lieberman from Barclays. Lauren Lieberman: Great. I wanted to talk just a little bit about Corona. I was actually surprised that in your prepared remarks, you talked about expecting more modest growth in Corona Extra in '23. But the momentum on that brand has been so strong this year, my understanding of anecdotes around performance during the Super Bowl period has been tremendous. So just curious why expecting things to slow down a bit in '23. Bill Newlands: Well, Lauren, we're actually very optimistic that we'll continue to see strong Corona Extra performance. Obviously, as you point out, it was a very pleasant situation for us this past fiscal year, and it significantly outperformed than we expected. But we also have a lot of other priorities in the Corona brand family, as you know. As I stated in my remarks, we expect Premier to be a heavy focus both in the on-premise as well as building out our distribution capabilities in the off-premise. So we're just trying to be sort of aware that we're going to have a lot of overall work across the family, but we expect to continue to see Corona Extra be a continuing growth driver in our overall business. Operator: Our next question is coming from Dan Mohsenian from Morgan Stanley. Dara Mohsenian: So I wanted to focus on beer margins First, just how much visibility do you think you have on the fiscal 2023 beer margin guidance given there's a number of moving pieces? There's also tremendous external volatility including how hedged or locked in on contracts you are on some of your key commodities and might. And what might be some of the bigger risk points in terms of margins? And then second, just on the pricing front, playing devil's advocate, why not be more aggressive than the long-term 1% to 2% algorithm? I'm just having a hard time believing that $1 incremental per case cost on beer is going to be that much of a factor in a trade down decision relative to consumers seeing much, much higher dollar pressure from other areas, whether it's grocery, gas or electricity costs. So just your thoughts around why not being more aggressive on pricing, particularly given the market share volatility and if you're seeing any signs of trade down so far? Garth Hankinson : Thanks, Dara. I'll take the first part of that question on margin and then Bill will comment on pricing. So as we started selling in the second half of last year, the inflationary environment, obviously, have gotten a little bit deeper and more protracted than anyone expected. And so that's why we were focused in January as to the facts we're going to be facing some additional headwinds this coming year. Typically, we're seeing inflationary increases on a year-over-year basis in that kind of low to mid-single-digit range. And this year, we're expecting them in the high single digit to low to mid-double-digit range. You're seeing that across things like glass, which is our biggest component in beer, which is up 6%. Cartons are up 17%. Crowns were up 26%. Wood pallets are up 35%. So costs are definitely under pressure for sure. That being said, we think that we're fairly well positioned as we enter into the year. To be very proactive around this, we've gotten more aggressive with our hedging policy or our hedging practices, I should say. We typically enter a year somewhere hedged in the neighborhood of sort of 50% to 60% on any given line. But this year, we've taken a more defensive posture to make sure that we're really protecting the P&L. As we enter the year this year, we're hedged at about 75% on aluminum, 70% on natural gas, 60% on the core and 90% of diesel. So we're in a pretty good spot. That being said, as you articulated, there's a lot of volatility around commodities, and that's where we're watching as we go through the year, and we're being opportunistic to layer and even been further hedges as we see weaknesses on a day-to-day basis. So we think we're in pretty good shape. But certainly, there's still some exposure just given the depth and the duration of the inflationary environment we're currently in. Bill Newlands: So relative to your question on price, we certainly understand the question, a lot behind it. So let me remind you how we price. We price on a SKU-by-SKU basis, market-by-market basis, and we're going to continue to do it that way. We also are probably a bit more judicious on price, and perhaps we could be. The reality is we need to be sensitive to our consumers. It's a challenging time for consumers across many, many industries. And it's our view that this is not the time to try to put extra burden out on one of the critical things that many people have in their basket, which happens to be our beers. So we're a bit probably more judicious than we might be able to be, but we think this is in the long-term interest. We always say it's a whole lot easier to keep your consumer than to lose them and have to reacquire them. And that's part of what drives our thinking. Operator: Your next question is coming from Bonnie Herzog from Goldman Sachs. Bonnie Herzog: Maybe just a little bit of a follow-on question to Bill, what you were just mentioning. I was just hoping to get some color from you on the consumer and sort of the spending behavior so far this year. I certainly know your products are premium, but curious, are you seeing any signs of down-trading pressure? And then could you talk about how well you think your portfolio will hold up if or when we enter a recession? I know Bill, in the past, you kind of mentioned your portfolio is pretty defensive. So I'd just be curious to kind of hear you revisit that for us. Bill Newlands: You bet, Bonnie. Fortunately, so far, things are holding up very well. One of the things that I've seen over the course of my career in the alcoholic beverage business, is many, many times, when there is recessionary environments, consumers are still interested in our category and almost view it as a small luxury that they can still experience where they might pass on buying a new refrigerator or something that's a bigger purchase. If they're having personal challenges, they still want to engage in some things that they enjoy in their life. And fortunately, our category is one of those. So so far, this continues to hold. And I think it speaks directly to my answer to Dara a minute ago, which is trying to be sensitive to our consumer and to make sure that that we continue to provide our great products to them at pricing that's reasonable given a tough environment. Operator: Our next question is coming from Chris Carey from Wells Fargo. ChrisCarey: Just one follow-up on the pricing and then related question. Are you planning on pricing on Corona? Or is that all going in Modelo and the other SKUs? Can you just maybe comment on where the pricing is going to be going in? And then just specifically on Modelo, I think you said mid-single digit to high single-digit in the off-premise. Can you maybe review expectations for on-premise penetration for this fiscal year? And just in general, where you see that as far as kind of innings of developing the on-premise for that specific offering? Bill Newlands: Yes, you bet. So I'll just remind you what I said earlier, which is we look at pricing on a SKU-by-SKU basis and a market-by-market basis. So it's not any individual brand, let's say, where we focus on pricing. It's really on a SKU by SKU, brand by brand. And so there's not in generality, as to your question, on a particular brand. Relative to Modelo, as I also stated earlier, one of our biggest arteritis is really on-premise draft. We're the #5 player in on-premise draft. We're only 11% penetration nationally in that particular format. That's a great opportunity for us to expand our reach, particularly on Modelo Especial. And interestingly enough, it was only beaten out of its growth last year by Pacifico, which I guess is not the worst thing. But certainly, Modelo, we think, has a great opportunity to continue to expand its reach, particularly as we continue to see much greater penetration in non-Hispanic households that's going to be both the on-premise and the off-premise numbers that both you and I quoted earlier. Operator: Thank your next question today is coming from Kaumil Gajrawala from Credit Suisse. Kaumil Gajrawala: Garth, can you maybe talk about the logic behind doing an ASR versus just buying in the open market over the course of the first quarter? Garth Hankinson : Sure. Thanks, Kaumil. Look, we're going to use the same approach this year that we used last year, which is we're going to use all sort of the tools that are available to us to buy back the shares that we need to buy back in order to meet our obligations. So last year, we used an ASR in the second quarter. We also took advantage of a 10b5 and 10b18 program. So we're going to do that for the -- we can optimize the timing of the -- of our repurchases as well as appropriately dollar cost averaging, dollar cost average out here to make sure we get the best value for this. And we opted to use the ASR in the first quarter because we're going to get the benefits earlier in the year. And also, I think that it's a good time for us to buy it. Operator: Thank your next question today is coming from Vivien Azer from Cowen and Company. Vivien Azer: I just wanted to offer, I think it's really reassuring to investors how consistent you guys have been in terms of the commentary on capital allocation today. So thank you for that. In terms of my question, I also wanted to focus on pricing in the health of the consumer but perhaps pivoting to the Wine & Spirits business. Clearly, you guys have done a ton of work to premiumize your portfolio. So given the portfolio evolution in Wine & Spirits, how does that change your thinking around your ability to take price there? Bill Newlands: I think it largely depends on the sector of the wine business in which we're discussing. As you know, mainstream is actually down, although we're gaining share in a down market. And that's the way we think about it. Let's gain share in the mainstream of the business. On the other hand, as you move up the price ladder, you're seeing significant acceleration, and many of our brands are performing extremely well, and it does give us some opportunity to increase our pricing and doing probably even a better job of covering some of the inflationary increases that we see in the beer business. So I think you should expect them to see a bifurcated answer where we need to be sensitive to what the marketplace is giving us in the mainstream but there's probably some opportunity as you look at the premium and up sections to be a little bit more aggressive in the pricing arena. Operator: Our next question today is coming from Nik Modi from RBC Capital Markets. Nik Modi: So just a quick housekeeping item, and then I have just a real question. Just, Bill, if you can just comment, given the rules around ASRs and material nonpublic information, can I presume that Constellation is not sitting on some news regarding a large M&A transaction? So that was just a clarification. And the real question is any update on how March depletions look. Some of the channel work that we did suggested some very strong results that look to be an acceleration sequentially from what you guys showed this February quarter. So any thoughts on that would be helpful. Garth Hankinson : Nik, this is Garth. I'll take the first part, and then I'll turn it over to Bill. I think it speaks for itself that Constellation is fully aware of and comprise all of our obligations under state and federal securities laws. And relative to your question of how March was, Nik, we're pleased that it's at least consistent with our annual algorithm despite huge comps that we faced in March of last year. So we're pretty pleased that we got off to a good start. Operator: Your next question is coming from Bryan Spillane from Bank of America. Bryan Spillane: So Garth, I had a question about just the Wine & Spirits margin outlook medium term. And one thing just in terms of, I think you gave kind of 2 sets of numbers. One was 28% to 29% operating margin and then the other was approximating a 30% EBIT margin over time. And just are those different? Or are we just saying that we still think we can get back to the 30% margin? I was a little just confused about the language there. Garth Hankinson : Yes, sure. So on the operating profit margin question, yes, so we are coming in at 28% to 29%. The difference between operating margin and EBIT is the addition of our -- what we take in from equity earnings and Opus One. Operator: Your next question is coming from Nadine Sarwat from Bernstein. Nadine Sarwat: I want to touch on Corona Hard Seltzer for a little bit. So that brand continues to underperform the broader seltzer market. So what's your strategy going forward with the brand? And then maybe taking a step back, a broader question related to this. What lessons have you learned from launching Corona Hard Seltzer? And how is this going to influence your approach to rolling out innovation in the future? I think you called out a number of those in your prepared remarks. Bill Newlands: Obviously, the seltzer market has developed very differently than what we had anticipated. And frankly, it's been more of a challenge than what we had anticipated as well. As you know, this year, we're doing a number of things. We're repackaging, as we said, in prior quarters. We are getting much more focused on where we bring differentiated products rather than me-too products into that particular sector. But we still feel that, that's going to be a growth segment of the overall beer business, and we're going to participate in it. So relative to lessons learned, I think a couple of things are always important. It's important to test. We're obviously doing tests as it relates to our Modelo franchises to make sure that we have consumer propositions that are best of class and that are going to win with consumers. And we're going to continue to operate under that approach going forward. Operator: Our next question is coming from Rob Ottenstein from Evercore. RobOttenstein: Terrific. Just kind of swinging back to the question on seltzers and taking it a little bit broader. Clearly, a lot of the excitement on that segment is gone. From your perspective, is there actually a silver lining in that such that retailers and distributors will spend more time, energy on your brands, and that should be something that you should benefit from going forward? And then connected to that, are you starting to get a little bit more of the shelf space that you guys have earned given the tremendous brands and velocity that you've had and the fact that you've been undershelved in the past? Bill Newlands: Robert, you definitely put your finger on a benefit of the scenario that the seltzer business has not been quite what we expected, which is -- it's very mix-accretive. So the more beer we sell, the better the mix. So that's the flip side of the seltzer business for us is not developed quite the way we had anticipated, as you point out. I think you make a very good point relative to shelf space. One of the things that occurred during the pandemic is many retailers just didn't redo their shelves to the degree that we would have expected or that you would see on a typical annual basis. And there's no question that the growth profile of our overall portfolio not only demands but really should have more shelf space. So this is going to be a critical part of what our sales organization is driving for this year, is to broaden our reach and package sizes and depth within stores. I mentioned the Shopper-First Shelf initiative, which we actually had a pretty good year on last year. We expect to extend that this year. It's good for the category, it’s good for us. So a lot of work will be done on that very topic this year, as you point out. And we think it will be in everyone's interest, ours plus the retailer, to give our brands more shelf space. They've earned it. Operator: Our next question is coming from Kevin Grundy from Jefferies. Kevin Grundy: Great. First, a housekeeping question on the Sands proposal, which Bill, I think you can't comment on, when do you expect the Board to vote on that proposal before potentially putting it out to the Class A shareholders? And then the broader question, Bill, just your perspective on the slow start to the year for the U.S. beer industry. So your data looks good. The results were obviously very good today. The Nielsen data continues to look good in the month of March for Constellation and probably even is a bit better, given some of the noise we understand in the Nielsen data in the last week of March. But I just wanted to get your perspective, more broadly, on what you think is driving that. I think there's some year-over-year comps at play, the seltzer slowdown, as you commented. But anything you're seeing that's potentially sort of concerning that you're watchful of, particularly around the consumer that may sort of play out here as it pertains to your portfolio? So your thoughts there would be helpful. Bill Newlands: You bet. So just relative to your question about the Sands proposal, we've been advised that transactions of this nature typically takes 60 to 90 days. Beyond that, it's really out of our hands. The management is not involved in the discussion, the discussions between the Sands family and the special committee of the independent directors of the Board. So I don't have the exact answer to that question, believe that by 60 to 90 days is very typical. So we shall see. Relative to the start of the year, I think everybody recognized January was a bit of a tough month. It was for every -- I think everybody in the industry. A little bit of that was where New Year's fell, there were weather events, Super Bowl got pushed out an extra week versus what it was the year before. But I think the exciting part for us is it was a very, very strong February, and as I responded to Nik 2 questions ago, March has been very strong as well in the start of our fiscal year. So I don't think there's anything that's overarching as an issue within the category but certainly not as it relates to our business. We continue to be very pleased with how our brands are performing. And as Garth pointed out in his prepared remarks, we've gotten our inventories back in the right position. So brands like Pacifico, which we were a little challenged for a while on brown glass, we have gotten through that. Some of those kinds of things, which were sort of detrimental to an otherwise very strong performance here, we've now fixed. So we're in a much better position heading into this fiscal year than we were last year where there were just a lot of extraneous things that were not helpful to us. Operator: Our next question today is coming from Andrea Texeira from JPMorgan. Andrea Teixeira: I just wanted to double-click on the opportunity to improve mix with the shift to on-premise. You had, I think, 3.8% price/mix expansion in the quarter. Can you still have around -- my calculation’s around the 100 basis points tailwind? And do you expect this to be -- price/mix to be embedded in your guide around 400 basis points? I just want to double check that. And on Wine & Spirits, I think Bryan, Vivien asked good questions regarding the outlook. Is there any reason why it was a bit disappointing? I know you're making a lot of investments to premiumize the portfolio. But anything to kind of give us more comfort that besides the Opus One impact, what is impacting there and if there is a better outlook towards the long term? Bill Newlands: Sure. Let me touch on the second piece first. We're still very pleased with the development, particularly at the higher end of our Wine business. As Garth pointed out, we had 2 or 3 one-off items that were a bit challenging based around the distributor transition that occurred last year and some sale of smoke tainted wine from prior years. If you would exclude those things, we're in a growth profile for our wine business, and that's being driven by the higher end. The work that Robert Hanson and the rest of the team have done to refocus our attention towards the high end in the growth sector of the wine business I think is exactly what we expected to do. It's the strategy we began and undertook a couple of years ago, and we're continuing to execute against it. So despite the significant headwinds, as I said earlier, in the mainstream sector of the business, we're very pleased with how things are developing at the higher end. And we're comfortable that our longer-term algorithm of 2% to 4% in the wine business will be achieved sooner rather than later. Garth Hankinson : And relative to your first -- the first part of your question, if I understood it correctly, you're pointing out that, in Q4, we had sort of a 4% points of pricing and whether or not that's going to continue. Our outlook for next year assumes that we're going to get our -- more in line with our typical 1% to 2% pricing. So that's sticking in line with our normal outlook. Operator: Our next question is coming from Steve Powers from Deutsche Bank. Steve Powers: Great. I actually wanted to follow up on both those those 2 questions and your answers there. So on the beer side of things, the 1% to 2% pricing outlook, you're saying that that's inclusive of any mix impacts. I want to clarify that. And then on the wine, Bill, given the decision to reinvest stranded overheads towards additional growth, as you think about that 2% to 4% objective, are you biased, over time, higher within that range because of accelerated reinvestments? Or is the takeaway that the -- just sort of the cost of achieving that top line has just gone up a tick because of -- probably because of mainstream dynamics, but just your perspective there. Bill Newlands: I think relative to the second piece of that, there's no question that there's obviously been an inflation, which is making a bit of that more challenging than what it had been prior. But I would like to point out something related to what Garth said in his prepared remarks, which is we've been very judicious, and thank you, Vivien, for your comment about our careful capital allocation. But I think this is a great example of it, we made 3 small purchases in the Wine & Spirits business almost entirely funded by the sale of one of our venture businesses, which was sold at a significant increase versus what we paid. So again, I think this begins to reflect a very judicious view of how we think about capital allocation and it’s very consistent with what we've promised externally. We do believe that we are going to see significant success going forward, particularly at the higher end of the business. I think the only thing that's going to potentially challenge that or be a challenge to it is where the mainstream business goes. As I said earlier, that's in the category that's been declining, and we're gaining share. So we're still winning in that category, but it's a tougher segment of the category. Certainly, we expect high single digits growth profile or even better at the higher end portion of our business. And you're seeing that in brands like Kim Crawford, Meiomi and the Prisoner and High West. So I think, over time, you're going to be pleased with what you see in the profile of our wine business. And this year will be a continued step in that direction. Operator: We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Newlands for any further or closing comments. Bill Newlands: Well, thank you, everyone, for joining our call today. In closing, I want to reiterate that I'm extremely proud of what our team accomplished in fiscal '22. We delivered strong financial results, continued to launch consumer-led innovation and reinforced our efforts to making a positive impact on our communities and the environment. Our beer business extended its leadership position with its 12th consecutive year of volume growth, and we are confident in our ability to maintain this momentum in fiscal '23. Over the medium term, we continue to see a strong runway for growth, supported by favorable industry trends for our portfolio and our ongoing investments in brewery capacity expansions. Our Wine & Spirits business also delivered solid performance in fiscal '22 with organic net sales growth and gross margin improvement. We are enhanced -- focused on consumer-led premiumization continued to yield benefits as our high-end brands outpaced the overall U.S. Wine & Spirits category. Overall, we remain bullish on the future performance of our business, in our ability to deliver value for our shareholders, as reflected in our announcement of a $500 million accelerated share repurchase program. Again, I thank you all for joining today. We look forward to speaking with you in late June during our next quarterly call. And before then, we hope you will certainly choose some of our fine products for your Cinco de Mayo and Memorial Day celebrations. Thank you very much again. Have a great day, everybody. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Operator: Welcome to the Constellation Brands Q3 FY 2022 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. Following prepared remarks, the call will be placed 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: Thanks, Valerie. Good morning, and welcome to Constellation’s Third Quarter Fiscal 2022 Conference Call. I’m here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company’s website at www.cbrands.com. Please refer to the news release and Constellation’s SEC filings for risk factors which may impact forward-looking statements we make on this call. Before turning the call over to Bill, similar to prior quarters, I would like to ask that we limit everyone to one question per person which will help us to end our call on time. Thanks in advance, and now, here’s Bill. William Newlands: Thank you, Patty, and happy new year to everyone on the call. I sincerely hope you were able to enjoy a safe and happy holiday season with family and friends. Calendar year 2021 was another challenging year given the continued effects of the pandemic, a host of global supply chain issues impacting nearly every industry, inflationary pressures, and severe weather events. That said, I’m incredibly proud of the determination shown by our team at Constellation throughout the year. They’ve worked relentlessly, navigating a myriad of evolving dynamics to deliver a very solid performance year to date and in Q3, putting us on pace for another strong year of financial performance and shareholder value creation in fiscal 2022. That said, I’d like to highlight a few key takeaways from the quarter. First, our Beer business delivered a very strong performance in Q3 while lapping tough comps in fiscal 2021. We continued to see robust consumer demand, yielding a high-single digit depletion growth. We extended our leadership position as the top share gainer in the high-end of the U.S beer market behind the strength of our Modelo and Corona Brand families while improving our inventory position. Our strong performance to date gives us confidence to increase top and bottom line guidance for our Beer Business in fiscal 2022. Second, we continue to see significant runway for growth for our core imported beer portfolio in the years ahead, and we’re investing in the next increment of capacity additions required to sustain our momentum as this represents one of the most compelling value-creating opportunities for our company and our shareholders. Third, our Wine and Spirits business has made solid progress in transforming both its brand portfolio and financial profile. Q3 marked another step along our journey as we continue to shift to a higher-end wine and spirits business focused on delivering increased revenue growth and margin expansion. While our Wine and Spirits business continues to navigate through a series of headwinds impacting its year-to-date performance, our increased focus and investments behind our fine wine and craft spirits portfolio, margin accretion innovation, and e-commerce initiatives continued to gain traction and are enabling an increase in our net sales guidance for the business in fiscal 2022. And finally, our strong overall total company performance in Q3 gives us confidence to increase our comparable basis EPS guidance for the fiscal year. Garth will provide additional details relative to our financial performance and fiscal year guidance in just a few minutes. Today, we are also excited about our announcement of a new agreement with the Coca-Cola Company in the United States to bring the Fresca brand into beverage alcohol through manufacturing and distributing a new line of Fresca Mixed Cocktails. Fresca is currently the fastest-growing diet soft drink in Coca-Cola’s portfolio, and over half of Fresca consumers already use it as a mixer with spirits. Building on this great foundation and in alignment with emerging consumer preferences around convenience, flavor, and a preference for high-quality products, we plan to launch Fresca Mixed later this year starting with cocktails using real spirits and inspired by recipes created by Fresca fans from around the globe. With that, let’s talk in more detail about our performance in the most recent quarter. Our Beer business posted depletion growth of more than 8% in the third quarter, outpacing the high-end of the U.S beer category. Modelo Especial continues to be our most significant growth driver, with depletions increasing over 13%. That is more than 5 million cases relative to the same quarter last year. It remains the brightest star in our portfolio as the top share gainer across the entire U.S beer category and IRI channels while maintaining its position as the number-one high-end beer brand. Our Modelo Chelada brand family has become an important growth contributor to our portfolio as the number-one Chelada in the U.S beer market and maintained its explosive growth, posting 35% depletion growth in the third quarter. We continued to build on this extremely successful innovation platform with a new entrant, Modelo Chelada Piña Picante, which was launched in August and is already a top share gainer among imported brands. Corona Extra sustained its reinvigorated growth trajectory and positioned as the second-fastest import share gainer and the number-three high-end brand in IRI channels with 11% depletion growth versus prior year. Similarly, Corona Premier continued its strong performance with 8% depletion growth which accelerated through distribution gains as supply conditions improved. From an innovation perspective within the Corona Brand family, Refresca and Refresca Mas are back in production and contributing nicely to growth in our ABA portfolio. Meanwhile, Corona Hard Seltzer remains a top seltzer brand in IRI following the dramatic slowdown in the seltzer category. We’re making good progress to enhance our flavor profiles and we’re on track to roll out the restaging of our variety packs, Tropical Mix pack and Berry Mix pack in the first quarter of fiscal 2023. And we are diligently working to address the brown glass shortage that is acting as a headwind this year, especially for our Pacifico brand which continues to see strong demand and has a long runway for growth ahead. Overall, our outstanding performance gives us confidence to increase guidance for our Beer business as we now expect to achieve 10% to 11% net sales growth and 6% to 7% operating income growth in fiscal 2022. To fuel the continued growth of our imported beer portfolio, we plan to deploy an increased level of investment over the next four fiscal years to support construction of a new brewery in Southeast Mexico in the state of Veracruz as well as to expand and optimize capacity at our existing Nava and Obregon operations. Garth will give you additional details on that momentarily. Now, moving on to our Wine and Spirits business, we remain committed to our vision to become a full and innovative high-end wine and spirits business with distinctive brands and products delivering exceptional consumer experiences. In an effort to make this vision a reality, we recently reorganized into two distinct commercial teams within the business, one focused on our fine wine and craft spirits brands, and the other focused on our mainstream and premium brands; while each team has their own distinct strategy, both remain aligned to our goal of accelerating performance by increasing revenue growth and expanding margins. Our fine wine and craft spirits business is delivering solid growth this year driven by brands like The Prisoner Unshackled, Robert Mondavi winery, and High West as well as strong gains in our direct-to-consumer e-commerce, hospitality, and international businesses. Our mainstream and premium business is focused on maintaining share in the mainstream wine segment while delivering and continuing to deliver growth through premium segment brands such as Meiomi and Kim Crawford, in line with our consumer-driven premiumization strategy. While we’ve experienced recent headwinds on mainstream brands like Woodbridge, Robert Mondavi Private Selection, and SVEDKA, IRI trends for these brands have improved since overlapping the peak of the pandemic supported by an increased focus on more relevant branding, strategic pricing, and innovation. Throughout our wine and spirits portfolio, we’ve launched several innovations that are creating momentum and driving growth, including Kim Crawford Illuminate and The Prisoner Unshackled, both of which were among the top five share gainers in their respective price points in IRI channels this quarter. During the quarter, we also launched multiple initiatives. First, the Editor’s Collection, an exciting collaboration between our Simi Winery and the Hello Sunshine Book Club, the Book Club community founded by media mogul and innovator, Reese Witherspoon. Second, SVEDKA’s ready-to-drink vodka soda mix pack and third our new Woodbridge three-liter box; we’ve also experienced successful market expansion for our Woodbridge and Robert Mondavi Private Selection spirit barrel aged wines. Within our DTC portfolio, we’ve launched exclusive SKUs for the Robert Mondavi Winery and The Prisoner Saldo red blends as well as High West Midwinter’s Night’s Dram and their ready-to-serve Manhattan and Old Fashion Cocktails. Within the three-tier e-commerce landscape, Constellation continues to outpace total US wine market growth by double-digits. In fact, Meiomi sales in the three-tier e-commerce channels increased 27% versus the prior year. Currently, about 10% of Meiomi’s sales come from three-tier e-commerce which is the highest level among leading U.S wine brands in IRI e-commerce channels. While we advanced our strategic agenda in wine and spirits, we continued to address a number of headwinds that have impacted our year-to-date performance. We continued to lap last year’s COVID pantry-driven loading where we experienced outsized growth. However, upcoming comparable growth rates are less challenging. Throughout the year, we’ve experienced out-of-stocks and other operational challenges related to our SAP implementation, a difficult domestic and international logistics environment, and our route-to-market transition of 70% of our distribution to Southern Glaciers wine and spirits. The encouraging news, these issues are all stabilizing. We are rebalancing our inventories and expect more standard service levels for the balance of the year. Based on our year-to-date performance, we are raising organic net sales guidance from 2% to 4% to 4% to 6% for fiscal 2022. And before I close, just a couple quick notes on Canopy Growth. Clearly, recent results have been disappointing and there are meaningful near-term challenges facing Canopy and the overall cannabis market in Canada as store openings have been slower than previously anticipated due to the pandemic. However, we continue to believe that the cannabis market represents a significant growth opportunity in the CPG space over the next decade given the predicted U.S market size of roughly 100 billion post-legalization, which is double the size of the spirits market and approaching the size of the beer category. We’re encouraged by Canopy’s innovation agenda, with more than 40 new SKUs launched globally during their recently reported second quarter. In addition, Canopy purchased the right to acquire Wana Brands upon a U.S triggering event which includes U.S federal legalization of cannabis. Wana Brands is the number-one share of the gummy market in Canada with more than 40% market share and the largest multi-market presence in the U.S gummy market. The gummies category is one of the fastest-growing segments in both the U.S and Canadian cannabis markets, accounting for over 70% of all edibles purchased. Wana’s asset-light licensing model approach will allow them to scale quickly in the U.S and provide Canopy a highly-distributed brand upon U.S legalization. In closing, I would like to reiterate our main takeaways from this quarter. Our Beer business continues to deliver impressive performance. Its growth remains ahead of the high-end of the U.S beer market in IRI channels and we now expect to achieve 10% to 11% net sales growth and 6% to 7% operating income growth for fiscal 2022. We remain confident in the robust longer-term growth prospects of our Beer business, and we’re securing our ability to capture the significant value creation opportunity by expanding and optimizing our production capacity over the next four years. Our Wine and Spirits business continues to move toward its long-term revenue growth and margin expansion vision which is further enabled by the clearer strategic focus of its newly-configured fine wine and craft spirits and mainstream and premium teams. And in spite of an ongoing challenging environment, our strong overall total company performance gives us the confidence to increase our comparable basis EPS guidance for the year. We look forward to continuing to build a portfolio of products that consumers love and delivering another strong year of financial performance and shareholder value creation in fiscal 2022. And with that, I will now turn the call over to Garth. Garth Hankinson: Thank you, Bill, and hello, everyone. Q3 was another quarter of strong execution by our Beer business. This continued strength, coupled with tax favorability enabled us to deliver 8% comparable basis diluted EPS growth for the quarter excluding Canopy. As a result, we have increased and narrowed our full year fiscal 2022 comparable basis diluted EPS target to a range of $10.50 to $10.65 versus our previous guidance of $10.15 to $10.45. This range excludes Canopy equity earnings, includes an increase in Beer operating income guidance, and reflects a decrease in the tax rate for fiscal 2022. Now let’s review our Q3 performance and full year outlook in more detail where I’ll generally focus on comparable basis financial results. Starting with Beer, net sales increased 4% driven by shipment growth of 3% and favorable price partially offset by unfavorable mix. As a reminder, we are lapping a significant inventory rebuild in Q3 of the prior year which generated 28% shipment growth. Depletion growth for the quarter came in above 8% driven by the continued strength of Modelo Especial and explosive growth of Corona Extra as well as the continued return to growth in the on-premise channel. Again, keep in mind the difficult volume overlap we encountered during quarter as we faced a 12% depletion growth comparison driven by robust inventory replenishment at the retailer in the prior year. On-premise buying accounted for approximately 12% of the total beer depletions during quarter and grew strong double-digits versus last year. As a reminder, the on-premise accounted for approximately 15% of our beer depletion volume pre-COVID and was only 8% of our depletion volume in Q3 fiscal 2021 as a result of on-premise shutdowns and restrictions due to COVID-19. Selling dates in the quarter were flat year-over-year, and please note that in Q4 there is one additional selling day. Cases shipped exceeded cases depleted as distributor inventory levels began to rebuild during the quarter. Inventories are expected to return to normal levels by the end of the fiscal year as shipment volume is expected to continue to exceed cases depleted for the remainder of the fiscal year. Moving on to Beer margins, Beer operating margin decreased 130 basis points versus prior year to 41.3%. Benefits from favorable pricing and marketing planning were more than offset by unfavorable costs. The expected increase in COGS was driven by several headwinds that included the following. First, increased material costs due to rising commodity prices and inflationary headwinds that on average are in the mid to high single-digit range predominantly driven by wood pallets, aluminum, steel and cartons. Please note that this range includes the impact of hedging where possible. Second, increased brewery costs driven by labor inflation in Mexico, increased headcount, incremental spend related to capacity expansion, and annual brewery maintenance that was performed during the quarter. As a reminder, the annual brewery maintenance took place during the fourth quarter last fiscal year. And third, a step-up in depreciation expense largely due to the incremental 5 million hectoliters at Obregon completed earlier this fiscal year. These COGS headwinds were partially offset by favorable fixed cost absorption driven by increased production levels. Marketing as a percent of net sales decreased 130 basis points to 8% versus prior year as we have returned to our typical spending cadence which is weighted more heavily towards the first half of the fiscal year. In the prior year, a significant amount of marketing spend was shifted from the first half to the second half of the fiscal year due to COVID-19-related sporting and sponsorship event cancellations and/or postponements. Additionally, we continue to expect full year spend as a percent of net sales to land in the 9% to 10% range which is in line with fiscal 2021 spend of 9.7% of net sales. For full year fiscal 2022, we now expect net sales growth to land in the 10% to 11% range and operating income growth to land in the 6% to 7% range reflecting continued the strength of our core beer portfolio. As previously communicated, we expect price increases within our beer portfolio to land slightly above our typical 1% to 2% range. However, we anticipate this incremental pricing favorability to be partially offset by unfavorable net sales mix primarily driven by a shift in package types and return of on-premise draft SKUs. We continue to expect our gross margin to be negatively impacted for the fiscal year as benefits from price and cost savings agenda are expected to be more than offset by cost headwinds predominantly driven by significant step-up in depreciation and increased inflation across numerous cost components as the inflationary environment resulting from economic supply chain and other by-products of the pandemic continues to be dynamic and variable. We now anticipate these elevated inflationary pressures to persist well into fiscal year 2023 and expect inflation on the commodity spend component of direct materials to land on average in the high single-digit to low double-digit range next fiscal year. We will continue to maintain our disciplined approach to address these evolving conditions through our commodity hedging program, cost saving initiatives, and balanced price adjustments. However, due to a persistent and tough inflationary environment and incremental depreciation driven by our capital expansion plans, operating margins could land below our stated 39% to 40% range in fiscal 2023. Let me reiterate that these are still best-in-class operating margins within our industry which reflects the strength of our core beer portfolio and efficiencies of our operations. We will continue to refine our outlook for fiscal year 2023 and will provide more details and official guidance during our Q4 earnings call in April. Moving to Wine and Spirits, Q3 fiscal 2022 net sales declined 25% as shipments declined approximately 39%. Excluding the impact of the wine and spirits divestitures, organic net sales increased 3% driven by shipment growth of approximately 3%. Favorable price, incremental sales of crates to Opus One, and small wine sales, all partially offset by unfavorable mix. Depletions declined approximately 7% during the quarter and continue to be challenged by port delays for our international brands and distributor route-to-market changes in transition markets. Additionally, depletions faced a difficult overlap, especially for our premium and luxury brands which experienced robust growth during Q3 of the prior year. However, we expect depletion growth to accelerate during the fourth quarter driven by the continued strength of our higher-end brands led by The Prisoner Brand family, Meiomi, and Kim Crawford, a robust innovation agenda, and an easier buying overlap versus a year ago. From a shipment perspective, we expect shipment growth for the fourth quarter to decelerate versus Q3 as we continue to right size distributor inventory levels for our mainstream brands. Moving on to Wine and Spirits margins, operating margin increased 140 basis points to 25.4% as decreased COGS, mix benefits from divestitures, and favorable price were partially offset by increased marketing and SG&A as a percent of net sales and unfavorable mix from the existing portfolio. As expected, lower COGS were driven by net favorable fixed cost absorption, lower rate for raw materials, and cost savings initiatives, partially offset by increased transportation costs. The net favorable fixed cost absorption resulted from lapping the unfavorable impact of $20 million in the prior year which was a result of decreased production levels due to the 2020 US wildfires. This benefit for the quarter was partially offset by unfavorable fixed cost absorption resulting from decreased production levels in New Zealand due to a late frost during their harvest season earlier this year. Marketing and SG&A as a percent of net sales increased versus the prior year due to the loss of top line leverage resulting from the divestitures. In the prior year, a significant amount of marketing spend was shifted from the first half to the second half of the fiscal year due to COVID-19-related cancellations and/or postponements. As a result, marketing as a percent of net sales for Q4 is expected to be lower than the prior year. For the full year, we expect marketing as a percent of net sales to be in the 10% range. For full year fiscal 2022, we now expect net sales and operating income to decline 21% to 22% and 23% to 25%, respectively. Excluding the impact of the wine and spirits divestitures, organic net sales is now expected to grow in the 4% to 6% range versus our previous guidance of 2% to 4%. It is important to note that the increase in our top-line guidance is mainly due to incremental shipments to support our route-to-market transition earlier this fiscal year and revenues associated with sales of smoke-tainted bulk wine. Both are one-time in nature and thus, we do not expect them to be repeated in future years. As such, going forward, we remain confident in our medium-term top line growth algorithm for the wine and spirits business 2% to 4%. Looking ahead to fiscal year 2023, we expect significant cost increases for the business including supply chain disruptions, inflationary cost pressures on product, freight, and warehousing costs. However, in order to mitigate some of these cost headwinds, we intend to take incremental price that will be staggered throughout the first half of calendar 2022. We will continue to work through the puts and takes of our full year fiscal 2023 outlook and will provide more details and official guidance during our Q4 earnings call in April. Now let’s proceed with the rest of the P&L. Fiscal year to date corporate expenses came in at approximately $162 million, down 6% versus Q3 year-to-date last fiscal year. The decrease was predominantly driven by compensation and benefits due to the reversal of an accrual for performance share units which will not be earned due to not achieving the threshold level of earnings performance from our Canopy investment and a favorable foreign currency event. These tailwinds were partially offset by an increase in consulting services and T&E spend. We now expect full year corporate expenses to approximate $230 million reflecting the year-to-date compensation and benefits favorability. Comparable basis interest expense for the quarter decreased 8% to $88 million versus prior year primarily due to lower average borrowings. We expect fiscal 2022 interest expense to land towards the midpoint of our previous guidance range of $355 million to $365 million. Our Q3 comparable basis effective tax rate excluding Canopy equity earnings came in at 14% versus 17.7% in Q3 last year primarily driven by the timing and magnitude of stock-based compensation benefits partially offset by higher effective tax rates on our foreign businesses. We now expect our full year fiscal 2022 comparable tax rate excluding Canopy equity earnings to approximate 19.5% versus our previous guidance of 20%. This half-point decrease primarily reflects the impact of increased stock-based compensation tax benefits received during the quarter. Additionally, stock-based compensation tax benefits were weighted toward Q3 versus our previous expectation of Q4 resulting in a sequential rate increase to our implied Q4 tax rate which is now expected to approximate 23%. Moving to free cash flow, which we define as net cash provided by operating activities less CapEx, we generated free cash flow of $1.8 billion for the first nine months of fiscal 2022 reflecting a 3% increase in operating cash flow offset by an increase in CapEx spending. CapEx spend totaled approximately $600 million which included approximately $500 million of beer CapEx primarily driven by expansion initiatives at our Mexico facilities. Our full year CapEx guidance of $1 billion to $1.1 billion which includes approximately $900 million targeted for Mexico beer operations expansions remains unchanged. Furthermore, we continue to expect fiscal 2022 free cash flow to be in the range of $1.4 billion to $1.5 billion. This reflects operating cash flow in the range of $2.4 billion to $2.6 billion and the CapEx spend previously outlined. As Bill mentioned, our Beer business continues to significantly outperform the U.S beer industry driven by robust consumer demand and it is essential that we invest appropriately to support the expected ongoing growth momentum for our exceptional beer brands. As such, we have updated and increased our brewery expansion investment plans in Mexico. Total capital expenditures for the Beer business are now expected to be $5 billion to $5.5 billion over the fiscal 2023 to fiscal 2026 time frame with a majority of spend expected to occur in the first three years. In total, this investment will support an incremental 25 million to 30 million hectoliters of additional capacity and includes construction of a new brewery in Southeast Mexico in the state of Veracruz as well as continued expansion and optimization of our existing sites in Nava and Obregon. Please note that this investment includes the previously-disclosed beer CapEx guidance of $700 million to $900 million annually during the fiscal 2023 to fiscal 2025 time line to support a 15 million hectoliter buildout between our Nava and Obregon facilities. As a reminder, our existing brewery footprint currently supports 39 million hectoliters between Nava and Obregon. In closing, I’d like to reiterate our medium-term growth expectations for our Beer business. As Bill and I outlined, we expect continued momentum and thus continue to target top line growth in the 7% to 9% range over the next three to five years which includes one to two points of price and implies buying growth in the mid to high single digit range. This expectation provides us with the conviction to support incremental capital investments in Mexico. With that, Bill and I are happy to take your questions. Operator: Thank you. [Operator Instructions] Our first question comes from Dara Mohsenian of Morgan Stanley. Your line is open. Dara Mohsenian: So on beer depletions, another strong result. It was the best two-year average we’ve seen in recent history. So in regards to Q3, can you discuss the underlying strength behind the business and maybe specifically, the market share performance which we saw improve in track channels? And then also, on a go-forward basis on depletions, how sustainable do you think those trends are? Perhaps give us an update on December. You sounded bullish on fiscal Q4 and any updates specifically on December and any thoughts around Omicron variant impact and if that could pose any risk to your business as we look at the on-premise channel or overall to the business. Thanks. William Newlands: Sure, we’ll try and up pack that, Dara. Obviously, we had a very, very strong Q3. As you saw, we saw acceleration during in IRI channels during the quarter as both a couple of things happened. First of all, acceleration of our brands; Modelo was up 13% depletions in the IRI take-out was up in the high-teens in the most recent four-week trends. Corona Extra has just been tremendous for us. It’s been great to watch and see that iconic brand do as well as it has. So we’re very excited about both of those. To your question about December, our year-to-date is up almost 9% in depletions, and I’m very pleased to say December was ahead of that trend and certainly it puts us in position to deliver the fourth quarter and the year that we had anticipated. Certainly the COVID scenario is different. You do see more consumers consuming more meals at home than what we probably saw before the start of the pandemic, and you do see a lot of variations depending on the individual market. Clearly, the on-premise is the one that gets nailed in these type of instances, and again, there’s a lot of variability there. But consumers are going out more than they did certainly a year ago, and we’re all very hopeful that this particular variant of the virus comes and goes more quickly. It certainly appears that those who are heavily vaccinated have had less overall experience and concerns around that, which ultimately should help the entire country and our business as well as people continue to go out in the marketplace. As you know, we have a Chief Medical Officer who continues to guide us on these important topics so that we make sure we not only keep our people safe, but do everything we can to meet consumer needs while we’re at it. So all-in, we think that we hope we’re progressing against that, but we’re very excited about the position we currently hold across our business and certainly are bullish about how the rest of the year and the close of the fiscal is going to go. Operator: Thank you. Our next question comes from Vivien Azer of Cowen. Your line is open. Vivien Azer: Hi. Good morning, and happy new year. In your prepared remarks, Garth, you noted that beer pricing is going to be I think you said specifically slightly ahead of your historical average. But as we observe the broader pricing backdrop across beverage alcohol as well as packaged food and beverage, it seems like the consumer is able to absorb a fair bit more pricing than we’ve seen broadly historically. So can you just kind of comment on your appetite to take incremental pricing and perhaps your views around your brand’s price elasticity specifically given your premium pricing? Thank you. Garth Hankinson: Yeah, thanks, Vivien. And as you know, our typical range for price increases on any given year is kind of in that 1% to 2%, so what we do is we go through the year, we’re looking at our portfolio, we’re looking at the competitive set and we’re looking at individual markets. We take our price increases on a brand-by-brand and on a market-by-market basis, and so we do this as I say in a very disciplined approach. Given the current economic environment this year, we’ve determined that we can take more pricing than we typically have, and that’s what’s driving us to say we’re going to be slightly above the 2%. Keep in mind we have to make sure that we’re balancing the right level of price increases with what’s going on with our consumer. As you know, we have a consumer set that skews a bit more Hispanic than some of our competitors, and in times of economic downturn, if you will, or weakness, they tend to get hit a little bit harder and they recover a little bit slower, so we want to make sure we’re not leaving any pricing on the table. We want to take as much as we can but we also don’t want to take so much pricing that we impair the performance of our brands or impair the growth of our brands. Operator: Thank you. Our next question comes from Kaumil Gajrawala of Credit Suisse. Your line is open. Kaumil Gajrawala: Hi. If I could just follow-up, Garth, on that, I think you explained how you take pricing in the market-by-market those sorts of things, but it seems pretty clear from everything that we’re seeing as it relates to inflation that the pricing you have in place now is covering it. But can you maybe just talk a little bit further out? It feels like that’s also likely to be the case for next year, so if you could just give some context on pricing for next year? Garth Hankinson: Sure, and thanks for the question. Look, we’re in the middle of our annual planning process, and so we’re taking a look at what we think we can cover next year. As you heard in my prepared remarks, we continue to think that inflation is going to be a big factor for us next year and we still intend to take significant amount of pricing. Where that falls within our range that remains to be seen, but that pricing that we do get hit as I said in my script, it’s likely not to cover all of our inflationary headwinds next year, but just like we did this year, we’re going to look at this on a market-by-market basis, brand by brand basis and we’ll take as much pricing as we think the consumer can absorb. Operator: Thank you. Our next question comes from Bonnie Herzog of Goldman Sachs. Your line is open. Bonnie Herzog: Hi. Thanks. Good morning, and happy new year. I actually just wanted to make sure I understand the different puts and takes for beer operating margins next year. You did mention you expect beer of op margins to likely be below your 39% to 40%, so just maybe wanted to make sure we understand the key drivers of this. First, I think you mentioned the higher cost pressures including depreciation expense, so could you guys maybe quantify a few of these buckets further for us? And then should we assume you’ll be able to generate your typical high single-digit Beer top line growth next year, with maybe possibly better-than-planned pricing that you just mentioned partially offset by negative mix. Thanks. Garth Hankinson: Yeah, so in general, or not in general, but we are sticking to our long term or mid-term growth outlook that is, so as I said in my script, we continue to target over the next three to five years in Beer to have top line growth in that high single-digit range, and as we’ve said historically, we think the right way to think about our margins is between 39% and 40%. However, we’ve also said that in any given year depending on market dynamics or what’s going on in the business that we could fall above or below that range. So I think what I referenced in my comments is pretty consistent with what the we said previously. We’re still, as I said, we’re still in the process of going through our annual planning process, so we’ll give a more update on margins as we close out the year and move into next year. But it is a tough inflationary environment. As I mentioned, we’re seeing inflationary and commodity pressures that are in the high single-digit to double-digit range, and again, we’ll absorb as much of that as we can with pricing and with a robust cost savings initiatives that we have in both wine and spirits and in beer, and we’ll alter our hedging strategy to take care or to take advantage of weakness in commodity prices as we see some weakness, as we recently have in aluminum and heating oil. So those are all things that we’ll do to try to offset inflationary pressures, but we’ll have more details on the actual margins and outlook for margins at our Q4 earnings call. Operator: Thank you. Our next question comes from Bryan Spillane of Bank of America. Your line is open. Bryan Spillane: Hi. Good morning, and happy new year. I guess my question is around the brewery, the new brewery in Veracruz and maybe just tying, Garth, back to the 39% to 40% margins over time for Beer. I guess given that the distance that that brewery will sit relative to the border, is there any negative mix implication I guess to margins over time as you begin to produce more beer there, or are there other offsetting factors that would sort of mitigate that? Garth Hankinson: Yeah, thanks, Bryan. Yeah, so we’re still going through the planning process there, but we do think that there are some offsets. So you’re right, it’s further away from the border than say Obregon or Nava. However, it does open up some really interesting shipping lanes to the Eastern half of the US going across the Gulf of Mexico, so we’re looking at those now to see what the impact is. We also, as we’re thinking about building the brewery up, what products we’re going to put into that brewery and what’s the level of complexity, what brands are we going to put in there, can it be highly efficient so that it offsets any margin impact. So still a lot of work to be done on that. I would expect we will have more details on that in our Q4 earnings call as well. Operator: Thank you. Our next question comes from Chris Carey of Wells Fargo Securities. Your line is open. Chris Carey: Hi. Good morning. Can you just expand on the Fresca partnership, how it came about, envision the timeline of the rollout? I know you said this year, but pace of rollout and how distributed you think this can get, and whether you envision doing more partnerships with the Coca-Cola Company, can you go outside of the U.S? So just a little bit more perspective. Thanks so much. William Newlands: Sure, Chris. This particular partnership around the Fresca brand was one that was very exciting to us. Fresca hits on a number of key consumer attributes, everything from convenience to flavor, and is the hottest diet soda in their portfolio. So the idea when you consider that more than 50% of Fresca consumers already mix it with spirits, it seemed like a natural one for us, and certainly, they felt the same way. So we’re very excited about the potential for this. Obviously it starts in the United States. We’re still putting a lot of finishing touches on exactly how and what this will be as we get later in the year and certainly we’ll give you a lot more information about that as we get closer to the time where we will launch this product. But certainly, this opens a very interesting door and one that’s exciting, I think, for both companies. Operator: Thank you. Our next question comes from Lauren Lieberman of Barclays. Your line is open. Lauren Lieberman: Great. Thanks. I know we’ve covered a lot. I wanted to ask about Corona depletions because the brand has had building momentum, getting up to double-digit depletions this quarter. So I think when I’d asked it previously, you didn’t have a great sense for how much of this was driven by on-premise recovery versus the brand performing better in take-home channels, and if it’s the latter, kind of what’s really been driving that change in momentum for the brand. So would love any additional color on that you can offer. Thanks. William Newlands: Sure, Lauren. We’ve noted a number of things as it relates specifically Corona Extra. First of all, as retailers have begun to address their shelving opportunity, we’ve taken advantage of that and improved our distribution profile versus what it had previously been. Second, our marketing effort is doing extremely well and it has been very, very well-received, and that’s driving consumer demand. So we’re very excited about that particular element. And we’ve said this many, many times before, but it remains as true as it ever has been. Corona is one of the most-loved brands in the beer landscape, so I think one of the things that you’ve seen a little bit of in this particular time frame is that the consumer is returning to many of those iconic brands that they love and trust, and Corona is really at the top of the list. We still saw in off-premise continued growth, as you’ve seen in the IRI channels that that continued to develop. On-premise has not gotten itself all the way back to where it was before the pandemic, but as we’ve always said, on-premise was a little bit smaller in the total profile of the Corona brand than it is for some other industry players. So overall, we couldn’t be more excited about it, and certainly, we’re going to continue the great work and the advertising sector. We have a very robust plan for advertising in the fourth quarter and we’re sure that’s going to continue to bear excellent results for our brands. Operator: Thank you. Our next question comes from Nik Modi of RBC Capital Markets. Your line is open. Nik Modi: Yeah. Hi. Happy new year. Good morning, everyone. Hey, just a quick follow up, and then my question. Just if you can give some perspective around the double-digit inflation, just kind of some of the builds there and what’s driving that. And then the question is, EBI recently announced they’re going to be launching a Corona non-alc beer, and I was curious if you guys have access to that innovation here in the US given how quickly that segment has been growing. Thanks. Garth Hankinson: Yeah, thanks, Nik. I’ll take the first part, and then Bill can respond to the second. So just on the inflationary front, as I mentioned, we’re seeing sort of a wide range of increases year-over-year from kind of low to mid-single-digit for things like corn and hops and glass, which obviously is a big driver of our cost build-up. But then you’re seeing some really large increases on things like cartons, which is up in kind of the mid-teens and wood pallets which is up sort of over 30%. And then there’s a number of other line items that range sort of in between those two bookends. So all of that is driving what we expect to be high single-digit inflation overall across for the beer portfolio. William Newlands: And Nik, relative to your question about the particular launch, the IP would certainly be available to us in the United States, but keep in mind that the regulatory environment of what you can put in as additives in the United States is very different than it is in Canada and it would remain to be seen whether or not that would fly in the United States. So it’s sort of a yes and a who knows on that particular answer. Operator: Thank you. Our next question comes from Rob Ottenstein of Evercore. Your line is open. Robert Ottenstein: Great. Thank you very much. So wondering if you could give us your updated view on the hard seltzer market, and in particular, the interaction between hard seltzers and beer and Corona specifically and maybe further thoughts in terms of where you look to take that business going forward. Thank you. William Newlands: Obviously, Robert, there was a lot of change in the seltzer business over the course of the last calendar year, and certainly, the growth profile has slowed substantially. We still think that there’s going to be some growth in that particular segment. As you know, we have both reformulated and repackaged some of our variety packs which we’ll be bringing out in the first quarter of 2023. We still think that that’s going to be an important part of the overall beer sector, and we’re going to participate in it. So we are optimistic that that’s going to continue to see growth, albeit it’s probably significantly lower than what everybody anticipated say a year ago, and so it remains to be seen. Most predictions have proven to be challenging, so we’ll not over-predict the question. What we will say is we think we’re putting the right products in the market that have the right flavor profiles that are going to attract consumers going forward. Operator: Thank you. Our next question comes from Sean King of UBS. Your line is open. Sean King: Hey. Good morning. Sort of related to Bryan’s question, but how should we think about the capacity expansion CAGR to 2026 with the long-term beer algorithm? Is it safe to say that the capacity will be exceeding the utilization based on the 7% to 9% growth model, and I guess is incremental capacity typically more flexible or automated because part of your success in this company has been the high utilization of the capacity that you have in place, so just curious on your thoughts on that. William Newlands: Yeah, certainly. One of the challenges that we’ve also identified in prior calls and it remains true today is we said we want to create some redundant capacity. Some of the challenges that we’ve had is we’ve had some one-off events that have caused us some inventory challenges. We think it would be highly beneficial to have some redundancy in the system and part of our expansion plan not only gets after, as Garth pointed out, high single-digit growth profiles for our business for the foreseeable near-term future, but also gives us some redundancy. So in the event that there are any external factors that are in play, it should have less impact on us going forward. We continue to maintain the 7% to 9% growth profile going forward that we’ve consistently said, and certainly we believe that our brands are going to continue to grow for the foreseeable future. So this is about investing in growth and it’s one of the very best value creation opportunities for our shareholders in our judgment. Operator: Thank you. Our next question comes from Kevin Grundy of Jefferies. Your line is open. Kevin Grundy: Great. Hey, good morning, everyone. Bill, I was hoping you could spend a moment on your decision to split the Wine and Spirits segment into fine wine and spirits from mainstream and premium brands. Just the factors driving that decision, how you expect it to drive improved results. And then more broadly, taking a step back, your openness to further divestitures through this reorganization, not drive the results you’re looking for in the segment? Thank you. William Newlands: So I think our thinking around that was in many instances, it’s very different approaches to how the consumer buys and engages with the fine wine and craft spirits sector. That area tends to be higher DTC. It tends to be higher on-premise, and in many cases it’s a little bit of a different skill set. And we realized by segregating those two things, it would give us a chance to both maximize the potential in the mainstream and premium sector as well as maximizing our potential at the very high-end where some of those different and evolving channels are becoming more and more important to us. I think both understand our strategy which is we want to grow our business, we want to improve our margin position to best of class margin structures, and we’re well on our way to doing that. But our view was this was an opportunity to maximize the potential to do that. It also matches up very nicely with how many of our distributors go-to-market where they separate their portfolio and their sales organizations in fine wine and craft sectors and mainstream and premium. So it also matches our organization with the route-to-market approach that many of our distributors take. Operator: Thank you. Our next question comes from Steve Powers of Deutsche Bank. Your line is open. Steve Powers: Hey, thanks, everybody, and good morning. Maybe circling back on Bonnie and Bryan’s earlier line of questioning on Beer margins and just round it out, if I could; as depreciation presumably ramps further alongside the CapEx build over the next few years, do you think you can get back to that consistent 39% to 40% range beyond fiscal 2023 as you catch up on the current inflation dynamics, or is there a risk that the depreciation build could keep you at least toward the lower end of that range for the next couple years. That’s just kind of a follow-up, clean-up? And then I guess relatedly, as the incremental CapEx commitment just runs through the cash flow statement, just any commentary you have on how you think about capital allocation in terms of how it may impact M&A or further return of shareholders over the next couple years alongside that ramp. Thank you. William Newlands: You bet, Steve. Garth and I have been very consistent about this now for years, quite frankly, of saying 39% to 40% is what we expect to do on a consistent basis. There will be individual years and times where we exceed that when things go in our favor, and there may be occasions where based on certain headwinds we fall slightly below that. But as Garth in fact pointed out earlier today, these remain best of class margins and we very strongly believe 39% to 40% is a very appropriate long-term algorithm for this business. Garth Hankinson: Yeah, and just to put a final point on that, as I said, you’re right, depreciation will ramp up but we’re going through the process right now. We’re looking at the impacts of what’s the right sort of capacity to have or capabilities to have in our breweries and optimizing that. We’re looking at optimizing our transportation. So to the extent that we have any news on that, then we’ll share it with you at our Q4 earnings call. As related to capital allocation, with this increased investment, nothing changes. We continue to have the best portfolio in terms of growth and in terms of margins. That growth and margins generates a significant amount of cash flow. That cash flow allows us to continue to prioritize investment grade rating, return capital to shareholders, and to invest in the growth of our business. So our capital allocation strategy hasn’t changed. And then the last piece of that is acquisitions, and we continue to say that acquisitions will be used as a portfolio gap filler, and in large part, we’re going to use our venture fund to fill those gaps. Operator: Thank you. The next question comes from Nadine Sarwat of Bernstein. Your line is open. Nadine Sarwat: Hi, everyone. Thanks for taking my questions. Two quick follow-ups, if I may. First regarding the Fresca agreement, could you give us a sense of the economics of the agreement, what would the impact on margins be, and what edge do you think you and Coke can bring into win in an already-crowded space. And then the second one on Pacifico. I know you mentioned brown glass bottles. What sort of initiatives do you have in place to mitigate this negative impact, and when can we expect Pacifico to return to its previous growth profile? Thank you. William Newlands: Sure. Relative to the brand, we will be buying concentrate from the Coca-Cola Company and manufacturing, marketing and selling that brand through our network. We’re very excited about it, frankly, because of the strength of the Fresca brand. It’s, as I said earlier, it’s a growing brand. It’s a brand that’s already used. More than 50% of the users use it as a mix with an alcoholic beverage. We think it’s a natural play while also recognizing the low-cal and great flavor characteristics of that individual brand. So we’re very excited about that. We are making progress on brown glass. I think it remains to be seen when we will be back to full competition and obviously it had some bearing on our ability to deliver in the quarter. As we said, brown glass has been a drag against otherwise outstanding results. We expect as we get into the new fiscal year that that will balance out quite a bit and that we will see Pacifico get back to the double-digit growth profile that we’ve enjoyed for the last several years. Operator: Thank you. Our next question comes from Andrea Teixeira of JPMorgan. Your line is open. Andrea Teixeira: Happy new year. Just to ask the margin question a little bit different, if I may. Given the new top line depreciation, why not giving guidance on an EBITDA basis? And related to that, can you please unpack the Beer operating margin assumption for next year landing below 39? If you’re assuming no additional pricing which you normally take I believe October/November and it only would impact the fourth quarter of 2023, and then if there’s any nonrecurring impacts of the depreciation of that on any of the hedges. And as a follow-up on the guidance for fiscal fourth quarter, I don’t think you’re implying any impact of the new variant above and beyond what you were expecting, so but if you can give us comfort on what you’re seeing on the trade and the ability for the distributors to get the beer on shelf and also on-premise. Appreciate those commentary. William Newlands: Let me answer the second part first, and I’ll have Garth answer the first. As we said, we have had a very strong start to our fourth quarter. Our depletions in the Beer business are up ahead of our year-to-date trends in the month of December, and we feel very comfortable and confident in our ability to deliver what we’ve said around fourth quarter and the overall fiscal year. Garth, do you care to take the first one? Garth Hankinson: Yeah, so just on the EBITDA point. Yeah, so of all, that’s a good point. It’s actually something that we think about, do we want to provide that level of detail, very much in a frontal up-front way. Again, as we go through sort of the planning process here and we look at the impacts of inflation, we look at the impact of depreciation, we look at the effects of our capacity expansion to the extent that we think that’s a meaningful way to show our financial results, then we will add it. Operator: Thank you. Our next question comes from Laurent Grandet of Guggenheim. Your line is open. Please make sure your phone isn’t on mute. Laurent Grandet: Oh, sorry. Sorry. Good morning, everyone, and wishing you all a very happy new year. I’d like to talk back on Fresca. I mean, first, will that be reported that brand will be reporting to the Spirits or Wine and Spirits segment or Beer segment? And at what level of margin should we think of, should we be concerned about the level of marketing you would have to spend to launch the brand? I remember you said to launch Corona Seltzer which was a much more known brand, you have to spend about $14 million. So I’d like to understand a bit more about the margin we should think of for that brand. Garth Hankinson: Well, relative to the whole Fresca story, we will bring that to you in our next earnings scenario when we are much further along on the exact launch planning and launch timing, and we’ll give you a more fulsome view of what we plan to do. What we would say, as we said in our release today, this will be going through our distribution network which will largely be driven by the gold network on the beer side and in some states it will go through the wine and spirits network, depending on the regulatory environment of the particular state. Operator: Thank you. This does conclude today’s conference. I’d like to turn the call over to Bill Newlands for any closing remarks. William Newlands: Thank you, everyone. Appreciate your joining our call today. Despite the challenges faced thus far driven by the continued effects of the pandemic, some global chain issues, and a volatile and dynamic inflationary environment combined with severe weather events, we’re on track to deliver again another strong year of financial performance. Our Beer business continues to remain extremely solid as consumer demand for our core beer brands continues to be robust, while our incremental capacity investments in Mexico will position us to capture the ongoing growth opportunities we see within the higher-end of the U.S beer market well into the future. Additionally, our Wine and Spirits business continues to move towards its long-term revenue growth and margin expansion vision. Overall, we remain bullish on the future performance of our powerful selection of consumer-connected brands which provides us with strong momentum as we head into the fourth quarter. As a reminder, during our next quarterly call, we’ll be providing our guidance for the upcoming fiscal year. So thanks again, everyone, for joining the call, and I wish you all a safe, happy, and prosperous new year. Thank you. Operator: Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.

Operator: Welcome to the Constellation Brands Q2 Full 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: Thanks, Josh and good morning and welcome to Constellation's second quarter fiscal 2022 conference call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements we make on this call. Before turning the call over to Bill, similar to prior quarters, I would like to ask that we limit everyone to one question per person which will help us to end our call on time. Thanks in advance. And now, here's Bill. William Newlands: Thank you Patty. Good morning and welcome to our second quarter call. Let's dive right into a discussion about the quarter. There were a number of puts and takes impacting our results in Q2 and Garth and I will spend time walking through them. However, the fundamentals of our business remains solid and consumer demand for our brands particularly our core beer portfolio remains strong. This gives us confidence to increase our EPS guidance for the year which we outlined in our press release earlier today and Garth will review in more detail shortly. In addition, we repurchased a significant number of shares in Q2 at prices that are favorable as we believe Constellation’s stock is undervalued at current levels. We've received some feedback from investors on this topic in recent weeks and we will address key themes that emerge from these discussions in our remarks. As we walk through our Q2 performance and outlook for the remainder of the year there are several key takeaways we would ask you to keep in mind. Number one, the momentum of our core imported beer brands provides a point of competitive strength versus industry peers as we are the leading share gainer in the high end of the U.S. beer market. The majority of our growth continues to be driven by Modelo Especial supported by strong consumer demand for Corona Extra and Pacifico and we expect this to continue for the foreseeable future. We continue to believe that Modelo Especial in particular has a long runway for growth given the steadily increasing household penetration for this brand among non-Hispanic consumers and continued strong velocity. Now we've admittedly had some supply challenges this fiscal year driven by several external factors, the most relevant being the ongoing robust demand for our beer brands. We do expect to return to more normal inventory levels by the end of Q4. Despite these challenges we continue to be on track to deliver a better than expected year for our beer business. In fact, our strong performance today gives us the confidence to increase guidance for our beer business as we now expect to achieve 9% to 11% net sales growth and 4% to 6% operating income growth for fiscal 2022. Our view is reinforced by recent 12 week IRI trends showing the Constellation’s beer business is significantly outpacing the high end and total U.S. beer industry. Point two, as it relates to our Hard Seltzer business and building off our last point, we are unique in our position versus our competitors in this space as our primary growth is coming from our core beer portfolio and we're not reliant on the growth of Hard Seltzer and ABA’s to achieve the medium term growth goals for our beer business. The Hard Seltzer landscape has shifted considerably in recent months therefore we've lowered our growth expectations for Corona Hard Seltzer resulting in a sizeable obsolescence charge taken for Q2 which includes our view of the total impact for the fiscal year. But let's be clear, we continue to see the Hard Seltzer and broader ABA space as a meaningful sector in the beer market and we continue to believe it's important to participate in and gain our fair share in this segment to complement the growth of our core imported beer portfolio and to maintain our position as a leader in the high-end of the U.S. beer market. Going forward we plan to focus on competing in this space in ways where we offer meaningful points of differentiation and unique value to consumers. I'll have more to say on this topic in a moment. Number three, while our wine and spirits business was challenged in the quarter by underperformance of several mainstream brands due to tough COVID comparisons, our recent route to market transition and supply chain challenges for our imported wine brands we continue to see the benefits of our premiumization strategy take hold. We are performing well in the high-end of the wine segment which represents the vast majority of expected industry growth over the next several years and we continue to strengthen our capabilities in emerging growth channels key to long-term success such as e-commerce and DTC. Number four, we continue to enhance our approach to innovation with a more consistent, strategic, disciplined, and consumer led approach with a focus on high growth segments aligned with consumer trends. Our innovation agenda is designed to complement our organic growth and we're developing sustainable products that are incremental to our business while further premiumizing our portfolio into margin accretive price points. Over the years we've been able to extend some of our brands into new spaces recruiting new drinkers and expanding occasions and we've achieved a healthy balance between both from the core and from innovation. Number five, our capital allocation strategy remains unchanged since I assumed the role of CEO almost three years ago. Since then we've made significant progress in reducing debt and achieving our goal of returning 5 billion in value to shareholders by the end of fiscal year 2023 through a combination of dividends and share repurchases. In fact, to date this fiscal year we have repurchased 1.4 billion of our shares and when combined with our dividend we have achieved nearly 60% of our 5 billion goal. To be clear, our shareholder value equation is based on outsized growth combined with return of dollars to shareholders. One of the most important capital allocation priorities is to continue reinvesting in our beer business to keep up with robust demand for our products. Despite initial challenges associated with the build out of a third brewery in Mexico, we have moved on to other capacity alternatives in the country. Our expansions in Nava and Obregon helped ensure we have adequate production capacity for the medium-term and will create much needed redundant capacity that better enables us to manage through unexpected events like we've experienced these past two years. We continue to work with the Mexican government to solidify plans for a new brewery in Southeastern Mexico with adequate water supply and an available talented workforce. Now let's move on to a more fulsome discussion about our performance within the quarter. During the quarter the McDowell brand family posted depletion growth of 17% for the quarter and single handedly drove total import share gains in the IRI channels on a dollar basis. As the number two beer brand in dollar sales in the entire U.S. beer category, Modelo Especial is the only major beer brand growing household penetration and is leading the way as the number one share gainer among high end brands. Modelo Chelada has become the number two brand family in the Chelada space posting depletion growth of more than 50% for the second quarter. Corona Extra continues its growth trajectory as the second best to share gainer and the number one loved brand in the import category driven by a return to growth in the on premise which currently represents approximately 11% of our beer business brand. In addition to the comments I made earlier about our Hard Seltzers I'd like to discuss industry trends and our refreshed approach to this sector of the beer market going forward. In the short to medium term we believe that there will be consolidation within the Hard Seltzer/ABA space primarily due to the chaos of skew and brand proliferation with too many new entrants that don't have the velocity or consumer demand to warrant shelf space. We also believe this sub category will evolve beyond low calorie, low carb offerings and open up to more distinctive consumer value propositions that include things like more flavor, different alcohol bases, and functional benefits. We've already started to innovate in this way with distinct products like Refresca and Limonada. We've also discovered that consumers are looking for more robust taste and flavor in their Seltzers. As a result, we will be altering the flavor and taste profile of our Seltzer portfolio to better align with the changing consumer preferences while also introducing single serve packages to better serve the growing convenience channel, our largest trade channel. And we have a solid line up of innovation that we have yet to introduce. We have several great examples of our innovation strategy at work within our wine and spirits portfolio. This business continues to drive growth from recently launched innovations including Meiomi Cabernet Sauvignon, Kim Crawford Illuminate, the Prisoner Cabernet and Chardonnay all of which are amongst the top 10 innovations across high-end wine in IRI channels during the quarter. And our wine and spirits innovation pipeline is ready to go with further consumer led new products as we head into our peak selling period including the expansion of our Svedka Ready to Drink platform and the introduction of Woodbridge Wine Seltzer’s and boxed wines. In addition to driving growth through innovation we're making progress with our core wine and spirits portfolio despite the previously mentioned challenges. We continue to take pride to further premiumize our mainstream portfolio as these steps are critical to maintain brand equity and to improve profitability which will serve our brands well over the long-term. We're putting points on the board in a number of areas where we're outperforming the U.S. wine market. Our high-end super premium plus portfolio grew net sales double-digits during the quarter. In on premise channels our investments are paying off with enhanced wine offerings at major restaurant chains. We're thriving in critical emerging channels like three-tier e-commerce and direct-to-consumer which continued to drive high-end growth where we are outpacing category performance at key accounts such as Instacart, Amazon, and Albertsons with the resurgence of online shopping due to the COVID pandemic. For example, Constellation’s fine wine share has expanded significantly in the latest 12 weeks due to the robust growth of the Prisoner on Instacart and Robert Mondavi Winery online.com. In fact, e-commerce and DTC sales are up nearly three to four times versus 2019 and they comprise roughly 3% to 5% of our business versus 1% pre-pandemic. Going forward we will continue to focus on becoming a category leader in e-commerce and DTC as we believe these channels will make up a significant portion of our mix over time and will continue to be an opportunity for high-end growth. I would also like to provide you an update on our U.S. harvest which is about 70% complete at this point well while our production facilities, wineries, and tasting rooms remain untouched by recent wildfire activity. This quarter our ventures activities included investments in adaptogen infused Hop Wtr and Aaron Paul and Bryan Cranston's artisanal Dos Hombres mezcal. Hop Wtr is a non-alcoholic calorie free sparkling water infused with adaptogens and nootropics to provide the perfect balance of function and flavor for health conscious consumers. The non-alcoholic segment of total beverage alcohol grew almost 40% in 2020 in dollar sales through IRI channels and according to IWSR research 60% of consumers are switching between non-alcoholic or low-alcoholic and full strength drinks within the same occasion. Dos Hombres is an award winning hand crafted mezcal brand created by breaking bad co-stars who have developed an exceptional liquid that receives frequent praise from both the industry and consumers. The overall U.S. mescal category grew 14% in 2020 according to IWSR and super premium mezcal priced above $30 per bottle is projected to be the largest and fastest growing segment within the category. Moving on to Canopy growth. We're encouraged by the recent introduction of the cannabis opportunity in Administration Act draft bill which was introduced by Senators Booker, Wyden, and Schumer in July. More than 90% of Americans are in favor of cannabis legislation for medical purposes and two thirds of those are in favor of legalizing for recreational use as well. In fact, nearly two out of three Americans already have legal cannabis access as 37 states have legalized for medical use and 18 states for adult use. While we're optimistic about Federal Legislation within this Congress, Canopy is now waiting for this reality to materialize. Canopy’s U.S. business grew 91% year-over-year in the most recent quarter driven by robust consumer demand for their CBD and CBG products including Martha Stewart branded products, quarto beverages, storage and baked products, and BioSteel's new RTDs. Over the coming years revenue for Canopy’s U.S. business is expected to grow significantly as it benefits from increasing distribution and new product introductions. Once THC permissibility becomes a reality in the U.S. Canopy expects their U.S. business to make a substantially greater contribution to their results. Canopy has scaled in multi-state route to market plan ready for legalization and has leveraged Constellation's distributor relationships to fuel their U.S. non-PHD business with more opportunities in a world post Federal permissibility. Overall we're comfortable with Canopy’s progress and we're looking forward to the growth and legalization prospects for the business. In closing I'd like to reiterate our main takeaways for this quarter. First, continued strong demand for our core imported beer brands provides a point of competitive strength versus industry peers led by their number one share gainer in the beer category Modelo Especial which we feel has ample runway for growth well into the future given the steadily increasing household penetration rates among non-Hispanic consumers and continued strong velocity. The short-term supply disruption to our imported beer business does nothing to dampen our long-term prospects as we expect to return to more normal inventory levels by the end of Q4 and we're on track to deliver a better than expected year for our beer business. Second, we continue to see the Hard Seltzer and broader ABA space as a meaningful sector within the beer market. Going forward we plan to focus on competing in this space in ways where we can offer meaningful points of differentiation in unique value to consumers and we have some upcoming innovation in this space that we're optimistic about. Number three, we continue to see benefits of our wine and spirits premiumization strategy take hold. We are performing well in the higher-end of the wine segment and we continue to strengthen our capabilities in emerging growth channels key to long-term success such as e-commerce and DTC. Four, we continue to enhance our approach to innovation with a more consistent, disciplined, and consumer led approach focused on high growth segments aligned with consumer trends to complement our organic growth while developing sustainable products that are incremental to our business at margin accretive price points. And fifth and certainly not least, our shareholder value equation continues to be based on the outsized growth combined with the return of dollars to shareholders and let me reiterate our capital allocation strategy remains unchanged. We remain committed to our goal of returning 5 billion in value to shareholders by the end of fiscal year 2023 through a combination of dividends and share repurchases. Our strong operational performance and cash flow generation allowed us to make significant share repurchases in Q2 aligned with our commitment which contributed to the increase in our EPS guidance for the year. At the same time, we remain committed to continuing to reinvest in our business with an emphasis on our beer business to keep up with the robust demand for our products. And with that I'd like to turn the call over to Garth who will review our financial results in the quarter. Garth. Garth Hankinson: Thank you Bill and hello everyone. Q2 certainly reflected another strong quarter of marketplace performance for our beer business. Due to continued robust consumer demand for core beer portfolio we now expect to exceed our initial top line and operating income targets for our beer business. Additionally, our strong cash flow generation enabled us to continue to repurchase shares during the quarter and through September we've repurchased 6.2 million shares of common stock for $1.4 billion. As a result, we have increased our full year fiscal 2022 comparable basis diluted EPS target and we now expect to be in the range of $10.15 to $10.45. This range excludes Canopy equity and earnings impact and reflects the increase in beer operating income guidance and decrease in the average -- in the weighted average diluted shares outstanding based on shares repurchased through September partially offset by an increase in the tax rate for fiscal year 2022. Now let's review future performance and our full year outlook in more detail where I will generally focus on comparable basis financial results. Starting with beer, net sales increased 14% driven by shipment volume growth of nearly 12% and favorable price partially offset by unfavorable mix. Depletion volume growth for the quarter came in above 7% driven by the continued strength of Modelo Especial and Corona Extra as well as the continued return to growth in the on premise channel. Depletion trends tempered in Q2 versus Q1 driven by out of stocks due to ongoing robust consumer demand as well lost shipping days for some of our distributors due to severe weather events including hurricanes and wildfires. We estimate that these factors hampered Q2 growth by approximately two to three points. As Bill mentioned on premise volume accounted for approximately 11% of the total beer depletions during the quarter and grew strong double digits versus last year. As a reminder, the on premise accounted for approximately 15% of our beer depletion volume pre-COVID and accounted for only 6% of our depletion volume in Q2 fiscal 2021 as a result of the on premise shutdowns and restrictions due to COVID-19. Selling days in the quarter were flat year-over-year and will also be flat in Q3. Wholesaler depletions continued to outpace cases shipped during Q2 resulting in a lower than normal distributor inventory on hand at the end of the quarter. To rectify this gap, shipment case volume is expected to exceed depletion case volume throughout the second half of the fiscal year resulting in a gradual improvement of distributor inventories during Q3 and Q4 as inventories are expected to return to normal levels by the end of the fiscal year. Moving on to beer margins. Beer operating margin decreased 530 basis points versus the prior year to 37.2%. Benefits from favorable pricing, mix, and foreign currency were more than offset by unfavorable COGS, increased marketing investments, and higher SG&A. The increase in COGS was driven by several headwinds that include the following. First, a Q2 obsolescence charge of $66 million. As a result of our production constraints earlier in the year we pre-built Hard Seltzer inventory in advance of the key summer selling season based on our best estimates for fiscal year 2022. Due to the overall slowdown in the Hard Seltzer category in the U.S. some of that growth is not going to materialize in the fiscal year resulting in excess inventory. Second, increased brewery cost driven by labor inflation in Mexico, increased headcount, and incremental spend related to capacity expansion. Third, a step up in depreciation expense largely due to incremental 5 million hectoliters at Obregon. And finally, as expected increased material costs predominately driven by increased commodity prices and inflationary headwinds on pallets, cartons, and aluminum. These COGS headwinds were partially offset by favorable fixed cost absorption. Marketing a percent of net sales increased 150 basis points to 9.9 versus prior year as we return to our typical spending cadence which is weighted more heavily towards the first half of the fiscal year. As a reminder, marketing spend in the first half of the prior year was significantly muted resulting from COVID-19 related sporting and sponsorship event cancellations and/or postponements. Lastly, the increase in SG&A was primarily driven by an increase of approximately $12 million in legal expenses as well as higher compensation and benefits. As mentioned earlier, we are increasing full year fiscal 2022 net sales and operating income guidance for our beer business. We are now targeting net sales growth of 9% to 11% reflecting the strength of our core beer portfolio and pricing actions that are higher than initially planned. Furthermore, we are now targeting operating income growth of 4% to 6% which implies operating margin in the low to mid-point of our stated 39% to 40% range. Please note that the updated guidance includes all obsolescence charges and legal expenses incurred in the first half of the fiscal year. We continue to expect our gross margin to be negatively impacted for the fiscal year as benefits from price and our cost savings agenda are expected to be more than offset by several cost headwinds. However, the mix and magnitude of these headwinds have changed from our original assumptions presented at the beginning of our fiscal year. First, we're still estimating a significant step up in depreciation expense which began to accelerate in Q2. However, some of this depreciation started late which began to accelerate in Q2. However, some of this depreciation started later in the year versus plan. As such we are now estimating total beer depreciation expense to approximate $250 million, an increase of approximately $55 million versus last year or a $10 million decrease versus our original planned estimate. Second, we still expect substantial inflationary headwinds across numerous cost components to continue during the second half of our fiscal year as commodity prices continue to rise specifically across aluminum, diesel, and pallets resulting from a rather volatile inflationary market. And third, due to the growth moderation within the Hard Seltzer market as well as lower ACB levels across the category on new items, we do not expect our Hard Seltzer skews to meet our originally planned volume expectations which results in a positive mix benefit versus our original estimate. Conversely due to the slowdown in the Hard Seltzer sector excess inventory resulted in a fiscal year-to-date obsolescence charge of approximately $80 million. Please note that these losses cover our Hard Seltzer obsolescence exposure and as such we do not expect to take any additional obsolete charges in the back half of the fiscal year for Hard Seltzers. From a marketing perspective we continue to expect full year spend as a percentage of net sales planned in the 9% to 10% range which is in line with fiscal 2021 spend of 9.7% of net sales. Looking ahead to Q3 I'd like to remind everyone of the difficult buying overlaps we will encounter as we're facing a 28% and 12% growth comparison for shipment volume and depletion volume respectively. Additionally, we expect to reform our normal annual brewery maintenance during Q3 which will result in a less throughput versus Q2 as we have to shut down production for a few days. As such we are estimating low single digit shipment volume growth for Q3. Moving to wine experience, Q2 fiscal 2022 net sales declined 18% on shipment volume down to 36%. Excluding the impact of the wine and spirits divestitures, organic net sales increased 15% driven by organic shipment volume growth of nearly 6%, favorable mix and price, and smoke tainted bulk wine sales. Robust mix driven by the Prisoner brand family Meiomi and Kim Crawford accounted for approximately nine points of the year-over-year organic net sales growth. Shipments were negatively impacted by port delays for our international brands and route to market changes which also impacted depletions. Depletion volume declined 2% during the quarter and was additionally impacted by the challenging overlap in consumer pantry loading behavior especially for our mainstream brands that experienced robust growth during the beginning of the COVID-19 pandemic. However, as we head into the second half of the fiscal year we feel as though most of these challenges are behind us and expect shipment volume and depletion volume to generally align in the second half of fiscal 2022. Moving on to wine and spirits margins. Operating margin decreased 620 basis points to 19.7% as mixed benefits from the existing portfolio and divestitures combined with favorable price were more than offset by increased marketing and SG&A spend, higher COGS, and margin dilutive smoke tainted bulk wine sales. Higher COGS were driven by unfavorable fixed cost absorption and increased transportation costs. The unfavorable fixed cost absorption resulted from decreased production levels in New Zealand due to a frost during our harvest season earlier this year as well as decreased production levels at our wineries in California due to the 2020 U.S. wildfires. These headwinds were partially offset by lower grade raw materials and other cost savings initiatives. Keep in mind that we're lapping lower SG&A spend in Q2 fiscal 2021 due to COVID and have a smaller business post the divestitures resulting in significant marketing and SG&A deleveraging impacting operating margins. For full year fiscal 2022, the wine and spirits business continues to expect net sales and operating income to decline 22% to 24% and 23% to 25% respectively. This implies operating margins to approximate 24% which is flattish to prior year on a reported basis which shows significant margin expansion on an organic basis. Excluding the impact of the wine and spirits divestitures, organic net sales is expected to grow in the 2% to 4% range. From a Q3 perspective keep in mind that we are lapping unfavorable fixed cost absorption of $20 million in the prior year resulting from decreased production levels as a result of the 2020 U.S. wildfires. We expect this favorable overlap to be partially offset by a continued increase in transportation costs and incremental unfavorable fixed cost absorption due to the New Zealand frost. Also, we continue to expect marketing and SG&A deleveraging as a result of the wine and spirits divestitures. As such we expect marketing and SG&A to continue to be a significant drag to operating margins in Q3 fiscal 2022. Now let's proceed with the rest of the P&L. Fiscal year-to-date corporate expenses came in approximately $170 million up 7% versus last fiscal year. The increase was primarily driven by higher consulting services and compensation benefits, partially offset by favorable foreign currency impact. We now expect full year corporate expenses to approximate $245 million driven by increase in compensation and benefits. Comparable basis interest expense for the quarter decreased 4% to approximately 96 million versus prior year primarily due to lower average borrowings. We now expect fiscal 2022 interest expense to be in the range of $355 million to $365 million. This slight decrease versus our previous guidance reflects early redemption of higher interest rate debt as well as $1 billion of senior notes issued in July at attractive rates. Our Q2 comparable basis affected tax rate excluding Canopy equity earnings came in at 21.8% versus 16.9% in Q2 of last year primarily driven by the timing of stock based compensation benefits and higher effective tax rate on our foreign businesses. We now expect our full year fiscal 2022 comparable tax rate excluding Canopy equity earnings to approximate 20% versus our previous guidance of 19%. This increase is primarily due to a higher effective tax rate on our core earnings than originally estimated. I would also note that we expect stock based compensation tax benefits to be weighted towards Q4. As a result, we expect our Q3 tax rate to be higher than our full year estimate at approximate 21%. We also now expect our 2022 weighted average diluted shares outstanding to approximate 192 million reflecting an impact of our September year-to-date share purchases previously discussed. Moving to free cash flow which we define as net cash provided by operating activities less CAPEX, we generated free cash flow of 1.2 billion for the first half of fiscal 2022 which is flat to prior year reflecting strong operating cash flows offset by an increase in CAPEX. CAPEX totaled $353 million which included approximately $295 million of beer CAPEX primarily driven by expansion initiatives at our Mexico facilities. Our full year CAPEX guidance of 1 billion to 1.1 billion which includes approximately 900 million targeted for Mexican beer operation expansions remains unchanged. Furthermore, we continue to expect fiscal 2022 free cash flow to be in the range of $1.4 billion to $1.5 billion, this reflects operating cash flow in the range of $2.4 billion to $2.6 billion and the CAPEX spend previously outlined. In closing I want to iterate that while we had our fair share of challenges during the first half of our fiscal year resulting in several puts and takes impacting our results, the fundamentals of our business remains strong and consumer demand for our products particularly our imported beer portfolio remains robust providing us with strong momentum as we head into the second half of our fiscal year. And with that Bill and I are happy to take your questions. Operator: . Our first question comes from Dara Mohsenian with Morgan Stanley. You may proceed with your question. Dara Mohsenian: Hey guys, so on the beer topline front, first just a detailed question given the volatility here and the tough comp in Q3, can you give us an update on how September depletions are trending so far and also for the quarter are you expecting depletions to still be above that low single-digit shipment rate that you mentioned or is that tough with the difficult 12% depletion comp? And then second, the longer term question is, you raised your revenue guidance for this year how much of that is underlying demand strength and depletions maybe versus shipments and perhaps getting more supply into the balance of the year versus pricing and on the pricing front you've sounded more aggressive in terms of pricing expectations going forward publicly, a) I guess, is that correct and b) is that more just to combat higher commodity costs or is it more confidence in market share gains or that the consumer environment is conducive to taking pricing care? Thanks. William Newlands: Sure, Dara. Let me take a swing at that and if I miss anything Garth can fill in behind. So relative to depletes in September, we expect those to be fairly consistent with year-to-date trends. We're just about wrapped up for September. Keeping in mind that's going against the 20% increase that we had during September of last year. So, that's a pretty powerful start to the quarter. We do expect that depletions are going to continue to be above shipments for the reasons that Garth noted in his remarks. So we would expect that depletions would be above it for that window of time. The pricing environment remains relatively strong. As we've said, we expect to be slightly ahead of our usual algorithm driven more by taking to pricing on some skews that we had not anticipated earlier in the year, more than we're doing anything unique to take additional pricing where we -- over what we had already planned. Garth anything you want to add to that? Garth Hankinson: No, I will just say on the depletions for the quarter, depletion growth will absolutely outpace shipment growth in the quarter. But on an absolute basis, the shipments will outpace depletions which helps us get into a better position from an inventory perspective. William Newlands: Yes, keep in mind, as we've said, we have our inventory levels at our distributors below what we would like to see and what they would like to see on an ongoing basis. So we would be expecting to fill some of that as we get our inventory levels back to normal position by the end of the fiscal year. Operator: Thank you. Our next question comes from Bonnie Herzog with Goldman Sachs. You may proceed with your question. Bonnie Herzog: Hi, thank you. I actually had a question on your guidance as well. I just -- in thinking through it and thinking about the mid points of your new beer guidance for the full year, this does imply a pretty big step down in the second half. For instance, your new guidance implies around 4% to 4.5% beer shipment volume growth, 3% off income growth, and then beer margins of 39% for the second half, and that compares to your beer margins of 40% in the first half, which did include the $80 million obsolescence charge that you pulled out. So, I guess, I'm trying to understand your level of conservatism with your new FY guidance especially with margins given you mentioned there's going to be no more charges in the second half. You highlighted you plan to take in incremental pricing and then there are a few other net positives Garth that you called out. So just wanted to make sure I'm not missing anything or maybe what’s changed there? Thanks. Garth Hankinson: Thanks, Bonnie. I mean look let me try to give you the walk on margins right and you noticed -- as you noted, we've got some headwinds and we've got some tailwinds, right. And so just on the tailwinds, obviously, we said in my opening remarks we've got a bit of a benefit on depreciation just starting later than expected in the year and so that's a net positive. As Bill just articulated, we're taking more -- we're taking increased pricing across more skews than we had originally planned, so we'll be above our range there. So that's a net positive. We also have a mix benefit of Seltzers and again a net positive there and then the increase in core beer outlook is a net positive. So, those are all the headwinds. But we still have -- those are all the tailwinds. But we still have the headwinds that we've been talking about all year long, right. So, even though depreciation is coming in less than expected, we still have an uptick in depreciation in the second half of the year. We still are facing increase in commodity prices, including aluminum, diesel, natural gas, wood those will continue in the second half of the year. Now we think that the guidance we provided takes into account all of those cost increases, so we feel we have those covered. But again, I mean, we just continue to have these puts and takes and we feel confident that in the margin outlook that we provided. Keep in mind too that even though we're going to have a mix benefit from Seltzers, we still are going to sell Seltzers and those are margin dilutive as we've noted previously. Operator: Thank you. Our next question comes from Nik Modi with RBC Capital Markets. You may proceed with your question. Nik Modi: Yes, thanks. Good morning everyone. So, I have two questions. One is a real quick one, just on the self-service formulation, still a bit -- I know you probably don't want provide too many details until it is in the market, but will this change the calorie or the sugar levels, so just curious on that? And then my broader question is Modelo is clearly doing very well. We see that in the data with non-Hispanic consumers. But as we look at some of the numerator data and we look at different cohorts, what we notice is that Corona has kind of leveraged to some of these demographics, so Modelo is doing much better so we are seeing some of those numbers in period. So just wanted to get a sense on incrementality of Modelo when you think about Modelo and Corona together and do you ever think that maybe there's a different merchandising scheme you can use instead of putting both brands right next to one another to kind of reduce some of that cannibalization? William Newlands: Sure. So relative to your first quick point there won't be radical change in the core formulation of our Seltzer layout. Relative to Modelo and Corona, obviously, there's interaction between those two brands as you would expect. However, as we've said before, Nik, and I'm sure you're quite familiar our household penetration on Modelo is still significantly below where Corona is to say nothing of it is below other brands that it competes against. So while it is a true statement that as Modelo grows or as Corona grows it does eat into some of our brands, we still see it as largely positive as we see that growth profile. And as we have talked before, Modelo, it continues to grow velocity, there's a lot -- still a lot of runway to expand distribution. Household penetration which I touched on just a second ago, remains a massive opportunity for that. And we only started advertising to the non-Hispanic community about three and half years ago. So, we're really just getting started on Modelo and the opportunity that presents itself there. So, well you continue to see some interaction and clearly, I think, the idea of separating those at retail to some degree has some opportunity. I think overall, we're still focused on expanding our presence of both of those brands. As you probably saw Corona Extra had a very good quarter. And it just shows the ongoing strength of the core Corona franchise in addition to exceptional performance by Modelo. Operator: Thank you. Our next question comes from Lauren Lieberman with Barclays. You may proceed with your question. Lauren Lieberman: Great. Thanks. I wanted to know a little bit about Corona Extra since you called out the 5% depletion growth for that brand and how that kind of shakes out between on premise recovery versus track channels or sorry, I should say I'm off premise? And then I was hoping you could also talk a little bit at Nielsen /IRI versus what you guys saw in terms of off premise trends in total, including on track outlets? And then finally, do any kind of update on Pacifico, just continually intrigued to hear about progress you are making with that brand? Thanks. William Newlands: Sure. So probably 50% give or take of the growth profile that we saw in Corona Extra is the reopening of the on premise. As we said in prior calls, we were down as low as 3% of our business a few quarters ago during the sort of the peak of the initial COVID pandemic issue. That's now up to 11% and clearly with the Corona being one of the most loved brands that exist in the category, the increase that you would expect to see an on premise has been important. But don't underestimate, Corona actually has done very well at retail as well. Relative to Pacifico, we continue to feel like Pacifico is another great opportunity. It's like a baby Modelo. It's developing in a very similar way to what Modelo did say 20 years ago with extensive growth profile on the West Coast and it is starting to filter East. As you know, we're investing more against Pacifico than we have historically. We have a little bit of challenge in this quarter with Brown Glass, which had some impact on Pacifico during the quarter as it did with Modelo Negra as well. But those are ongoing supply chain challenges that we're working our way through. It does nothing, nothing to slow down what we expect to be another superb brand for us as time goes forward in Pacifico. Operator: Thank you. Our next question comes from Chris Carey with Wells Fargo Securities. You may proceed with your question. Chris Carey: Hi, thank you very much. Just on Hard Seltzers. You had originally planned on investing pretty significantly behind the launch this year. Are you getting any savings from those investment plans now that the category has slowed or are those locked and presumably that can be a good story going into fiscal 2023? In addition, you had mentioned that you had plans to double capacity for your ABA’s and so how are you thinking about flexing that capacity towards beer, obviously you're looking at building a new brewery in Southeast Mexico, does this get to delay that new build out over time because you have capacity? Garth Hankinson: Yes, yes, thanks for the question. So on the capacity piece first, right as we announced last spring, we were investing in 5 million hectoliters worth of ABA capacity that is moving forward as planned and should come online earlier in our fiscal year 2023. That's still an important initiative for us because it's built outlined in his prepared remarks. Well the Seltzer category has slowed the ABA segment within beer continues to be a dynamic and meaningful part of the high end and it's one that we need to need to compete in. And by having dedicated ABA capacity that frees up capacity for our core Mexican beer portfolio. So that goes on as planned. And then furthermore on the investment that you referenced in the first part your comment and your question, we did indicate that we going to spend $60 million this fiscal year behind Corona Hard Seltzer. Most of that spend was slated to be spent in the first half of the year. So that has been spent and that, which wasn't spent is being redirected to invest behind our core Mexican beer portfolio. William Newlands: The only other thing I'd add to that on the last part of your question was about whether or not it causes any delay in what we would do to invest in the Southeast. As I said, we're continuing to work with the Mexican government. We feel the Southeast is highly likely to be where we put our next brewery position. And as we said, because of robust demand we're going to continue to invest to support our business. So, we would not expect to see any radical change of what our timeframe is all about. Demand has been higher than expected. We need to create some redundancy in our system as we've noted on prior calls and our brewer in the Southeast will be an integral part of that strategy. Operator: Thank you. Our next question comes from Vivien Azer with Cowen. You may proceed with your questions. Vivien Azer: Hi. Good morning. I was hoping you could comment please on intra quarter trends in on premise, whether you saw an evolution or a softening there around the delta variant? And as well, perhaps from an industry perspective, are you observing any changes in consumer alcohol preference across kind of TBA, and across category switching as consumers central back out and deposit in restaurants? Thanks. William Newlands: Sure. We saw a lot of variation in on premise and at the risk of saying yes, no, yes, no, and yes no it is largely depended on where you were geographically and what was going on in particular markets. So, while we would sit here and say, State X is coming up and we're seeing more on premise if you saw a wave of COVID challenges and in another market, you saw stuff go the other way. So what that basically I think there was an over overarching answer to that question, it was really on a localized basis that you saw many of the movements within the quarter. Again, in the aggregate, on premise was better than it was in the prior year and it continues to be increasing as a percentage of our business but it's still not quite where it was before the pandemic. So, hopefully that helps. It's very hard to give a real aggregate of the thing because it's really made up of a lot of individual answers rather than something being an overarching trend across the marketplace. I think relative to your question about across category, I think the overarching thing that you see there is the premiumization trends continue, whether you think about it in ready to drinks or ABA’s, you continue to see people premiumizing, you see it in the wine business where the higher end of the wine business continues to outperform the mainstream sector of the business and you continue to see that in spirit. So, I think that is an over overarching trend, that you see. You also see what we found for many years now, which is consumers are more interested in having and array of beverages depending on the exact occasion in which they are consuming product and are less likely than they used to be to consume only one type of product at any anyone occasion than what was perhaps the case historically. So hope that helps. Operator: Thank you. Our next question comes from Kevin Grundy with Jefferies. You may proceed with your question. Kevin Grundy: Great. Thanks, good morning everyone. Bill, just picking up on the last question, but really kind of lasering in I guess a little bit on wine and broadly for the industry, because there's been some discussion in the marketplace about the recent slowdown and it's not limited to the on premise and we have seen the Nielsen data. So your point is extremely well taken, the premiumization trends are still in place, obviously broadly based across total beverage alcohol but even on a two-year average basis this is -- we're seeing the trend slowdown here. So, I'm not sure how much more you can add to your comment previously. Do you view this as transient at this point on this deceleration we're seeing in the category, is there a bigger maybe bit more difficult to quantify dynamic going on around ready to drink beverages in a way there hasn't been with wine before, if you could comment on that? And Garth just sort of a cleanup up, but I think important, the 30% operating margin target in the wine segment, is that still the target and is fiscal 2024 over the next couple of years, is that sort of enough of a timeline line to take out the stranded overhead, so your comments there would be helpful? Thank you, both. William Newlands: I think you got to keep in mind relative to the higher end of the wine business, you're also seeing some what I'll call channel evolution and things like three tier e-commerce and direct-to-consumer. Those are for us three to four times what it was in 2019 and you're seeing that as sort of 3% to 5% of our business today where it was 1% before. So some of what you're seeing in that is a difference in the way the consumer actually acquires and it may or may not be reflective of some of the IRI/Nielsen data because it's not picked up in those channels. Some of it is with three tier e-commerce, but certainly the direct to consumer channel is not. So, you've got some of that dynamic in place and of course, almost all of that tends to the higher end. That's where that consumer purchasing behavior occurs. So, I do think there's ebbs and flows on all of those things. I think you saw probably more consumption behavior at home during COVID so you're probably seeing a little bit of more challenging comparable versus prior year. So, I think as we get hopefully back to a bit more normalcy, I think you'll continue to see what the long-term trend is which is that the higher end of the business continues to outperform, and then it's a strong growth of play for that sector. Garth. Garth Hankinson: Yeah. On the wine margins, certainly the target margin for wine is still 30%. As we've said all along that it was going to take us about two years post divestiture of the low end for us to be able to achieve that 30% operating margin. So, by the time we get to the end of our fiscal 2023 wine should be in that zip code. Obviously the progress on that is underway. We're making some good progress as we've said before in order to get there. There's a number of initiatives that that we have to make progress on, that's pricing mix footprint optimization, making smart design to value choices. And like I said, we're making good progress and we're confident that we can get that 30% by the end of 2023. Operator: Thank you. Our next question comes from Robert Ottenstein with Evercore. You may proceed with your question. Robert Ottenstein: Right. A couple of questions. First, obviously the low inventories hurt depletions. Can you give us a sense of where you think depletions would have been if you had full inventory levels and I'm hearing it hurt Corona most, can you verify that? William Newlands: Obviously, that's a little bit of a tough question to answer, because unlike a year ago where we were very selective a what we produced this year we've been producing all skews. We've just had trouble keeping up with the demand. Our best estimate would probably be in the 2 to 3 percentage points that we lost in this process. But again, in most instances the consumer is looking for our brand, they may have an issue out of particular point time finding a skew, but they don't have trouble finding our brand. So, I think that's probably the way to think about it. Robert Ottenstein: Great. And then second question, as you kind of do a diagnostic on what happened with Corona Seltzer, I think I heard you say that flavor was an issue, that the consumer wants more flavor. So, as you think about it, was it a question of the taste not being differentiated or is there an issue with having a brand that's associated with the beer or are there other factors in addition to obviously the sector slowing a little bit, just like to hear a little bit more of your diagnostic on the situation? William Newlands: Well, I would put more emphasis on your very last point, which is the sector changed a lot versus what everybody anticipated. I think we were probably a bit on the conservative event compared to some of the competition as to what they expected going into this year where some of them were predicting in excess of 50% growth, we projected less. But even as it was, we were wrong. So that is the fundamental issue. When you combine that with the fact that we pre-produced, which again at the time was about production scheduling and our judgment was the right thing to do at the time, that in hindsight did not work out for us as well either. But you got to keep in mind, despite all of that, it's a relatively small percentage of our overall growth profile. It is additive to our growth, it is not the majority of our growth. The majority of our growth continues to be the robust demand against our core beer portfolio, and that's where we expect it to continue to be. So, now relative to the formulation, we just -- we obviously do a lot of consumer research and we track consumer perspectives and we have found that consumers are desiring a bit more flavor and a bit more differentiation within their Seltzer preferences and we plan to address those consumer needs. Operator: Thank you. Our next question comes from Sean King with UBS. You may proceed with your question. Sean King: Great, thanks for the question. Thinking longer term on the margins front and some of the long-term exposures you have and hedges you have in place, is the second half fiscal 2022 the right way to be thinking about margins for 2023? William Newlands: Okay, I think the right way to think about margins over the near and medium term is consistent with our long-term growth algorithm, which is that we're going to achieve margins in the range of 39% to 40% and as we say in every call, those are best in class margins and we're not apologetic about those. In any given fiscal year margins might be slightly higher than that due to tailwinds and in some years they might be slightly lower than that just due to too many headwinds. But the right way over the medium term is to think about those in the range of 39% to 40%. Operator: Thank you. Our next question comes from Nadine Sarwat with Bernstein. You may proceed with your question. Nadine Sarwat: Hi. Thank you for taking my question. I want to circle back to Pacifico and you had called out the Brown Glass challenges that you faced. So obviously that brand saw weaker Nielsen off trade trends this quarter and I noticed that you didn't call out its depletion figures in the release. So, could you provide this and maybe give us some color as to if there were other issues outside of the glass issue you already called out? Thanks. William Newlands: Sure. We had mid-single-digit depletion growth in that brands during the quarter. And obviously it was constrained. We would have expected it to be higher without any supply chain issues that revolves around Brown Glass. Operator: Thank you. Our next question comes from Andrea Teixeira with J.P. Morgan. You may proceed with your question. Andrea Teixeira: Thank you. Good morning. So I wanted to go back to the depletion in shipments commentary. You said depletion should outpace the low single-digit shipments you have guided in the 3Q which would imply a sequential acceleration in 3Q from the 12% on a two-year stack that you achieved in the second quarter. So given that you're facing a tougher comparisons, as you do depletion the same amount of our 12% in the third quarter of last year, is that acceleration on the two year coming mostly from on premise and at home decelerating, but still growing, is that the way we should be thinking, in other words, should we think about the depletion growing around mid-single-digits when you said, I think you said it emphatically that the third quarter depletions would outpace shipments as well? And then related to -- and just a clarification on the pricing front, should we think that you will have about 2% price mix realization already in 3Q and what are you seeing playing out so far? Thank you so much. William Newlands: Sir just on Q3 shipments and depletions. What we said in terms from a growth perspective, shipments will grow in the low single digits and depletions will grow higher than that. We furthermore said that on a volume basis, depletions -- shipments would outpace depletions and therefore we made progress in returning inventory to more normal levels by the end of our fiscal year. On the pricing question, what we said on that was is that our typical pricing algorithm has us gaining one to two percentage points per year. Given the pricing environment that we're in this year, we're able to be a little bit more aggressive on products that we wouldn't otherwise take pricing on. And so we're going to be -- we're going to take pricing on those skews and as a result, we will be slightly lump above our 2% this year. Operator: Thank you. Our next question comes from Laurent Grandet with Guggenheim. You may proceed with your question. Laurent Grandet: Yes. Good morning everyone and thanks for the question. So, I'd like to come back on the Seltzer category. So first, what is the gross for the category and really I am interested in the rationale behind it and thinking about the next let's a year or so? And then as you mentioned, there will be a consolidation with the elimination of lower velocity SKU, do you see a risk potentially for the Corona Seltzer, the white can as that SKU has been severely underperforming the category, so do you see a risk here that you could lose ACV? And finally, how are you planning to gain the fair share of the Seltzer category especially as Mexican brand I mean, Top Chico is really becoming more national beginning of next year and they are also launching a margarita flavored, more flavor than that SKU, so would like to understand how you will play that? William Newlands: Sure. If I understood the first part of your question correctly, I mean, keep in mind that the beer category has been roughly flat at a time when we are up roughly 8%. So there is a significant delta between what the overall category is performing and what we are performing. We're radically outperforming the category. Relative to our desire in the Seltzer/ABA space, there's a number of things. First of all, we're going to focus our attention on where we think we bring differentiated products that are distinct. Given what we have today, I would use Refresca and Limonada as two examples of that that meets specific needs and are not what I would describe as need to products. We also have as we noted in our scripts some innovation agenda items that we think are going to be distinctive and will bring unique value to the table as well. So, we continue to believe this is going to be additive portion of our growth, but certainly not the largest portion of our growth that will continue to be our core beer portfolio. Operator: Thank you. Our next question comes from Bill Chappell with Truist. You may proceed to your question. Bill Chappell: Thank you. Sorry to belabor the Seltzer questions. But I mean I guess two things, one simple, one bigger picture. I mean, two quarters ago like you said, you have a lot of market research, you and everybody else was very bold up about the market and it seems like it was a soft summer. But it didn't seem like the category was a fad or it's over. But in kind of redirecting, marketing and advertising and moving to kind of focus SKUs, it seems that is what you're kind of saying so, I guess, is that what you're saying, I mean do you see this as kind of a small niche permanently and everybody was kind of wrong, it was going to be a bigger place or is this just a pause for the category? And then the second question is with you directing kind of advertising marketing towards your core beer portfolio, does that result in -- I know it's small, but Seltzer falling off a cliff over the next two quarters and creating kind of headwinds for your growth on beer? Thanks. Garth Hankinson: Sure. Relative to the category, our view of it is this, we still think that the overall ABA space is going to be a growth category. Whether or not the Seltzer sub segment of the beer category is -- how much of that is going to be driven by the Seltzer sub segment remains to be seen. Quite frankly, clearly it is going to be a lot less than what everyone anticipated coming into this year. But again, for us, it's a relatively small percentage of our overall play. So, we are not entirely reliant on success in the Seltzer category. In fact, we expect to achieve our algorithm through our core beer business. Relative to the question of will this put a damper on our growth in the beer business, if Seltzer is challenging, not really. I mean the fact that we are able to raise our guidance is largely driven by the fact that we're able to make more beer. And we're able to make more beer because we're making a little less Seltzer and that is margin accretive and it's a very high growth category. So I realize there is a bad side and good side to that answer. But the reality is, it's not inconsistent with what we've always seen, which is our core business portfolio of beer from Mexico continues to radically outperform the industry and we continue to be the leader in the high end and the high end growth. So, is it going to be any different going forward? I think it's a little bit remains to be seen. We're going to have a little bit more of a watch and see efforts than we had before. I think everyone got a little bit excited about Seltzer. And frankly, the category has slowed significantly. So I think we will probably do a much better job of being guarded in terms of our expectation around that while continuing to leverage our outstanding portfolio of core beer brands. Operator: Thank you. I would now like to turn the call back over to Bill Newlands for any closing remarks. William Newlands: Alright. Thanks very much. And thank you all for joining our call today. Despite some challenges impacting our results this quarter, as you can see, we remain very confident on the strength and underlying fundamentals of our business. Our beer business in particular continues to be a tight growth driver within the industry while we continue to see the benefits of our wine and spirits premiumization take hold. We remain bullish on the future performance of our powerful collection of consumer connected brands, which provides us with strong momentum as we head into the second half of our fiscal year. Our next quarterly call is scheduled for early January so we hopefully wish everyone a safe, happy, and holiday season. Please remember to enjoy some of our great products during your celebrations, and please remain safe. Thanks for joining the call. Operator: Thank you. Thank you for participating. You may now disconnect. That concludes today's conference call.

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: Thanks, Jiji [ph]. Good morning, and welcome to Constellation's first-quarter fiscal '22 conference call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements we make on this call. Before turning the call over to Bill, similar to prior quarters, I would like to ask that we limit everyone to one question per person which will help us to end our call on time. Thanks in advance. And now, here's Bill. William Newlands: Thank you, Patty. Good morning and welcome to everyone to our first quarter conference call. Picking right up where we left off in Q4, our Constellation Brands' team with the help of our distributors and retailers delivered another strong performance in Q1 of fiscal '22. While we overlap the pantry-loading phase of the pandemic, which led to record trends in off-premise tracked channels last year, our continued focus on brand building, aggressive investments in growth, and the continued efforts of our team and trade partners positioned us to deliver another strong year of performance consistent with our long-term goals. As Garth and I detailed some of the highlights from Q1, there are several key factors we'd like you to keep in mind that constitute our points of differentiation, our competitive strengths, and reasons to continue to believe in the future growth potential of our business and our ability to drive industry-leading, total shareholder returns over the long-term. Number one, our strong portfolio of core brands across beer, wine, and spirits continues to gain momentum while offering significant runway for growth in the years ahead. Nowhere is this more evident than in our beer business, which is off to an exceptional start delivering double-digit depletions, shipments, net sales, and operating income growth due to ongoing strong consumer demand. Number two, we continue to be relentless about keeping consumers at the forefront of our decision making, and this is nowhere more apparent than in the strides we're making to strengthen our innovation capabilities and ensure we're capturing our fair share of growth in emerging categories. Number three, our investment in Canopy Growth along with the continued efforts of the Canopy team are positioning this business to emerge as a leader in the global cannabis market as it comes to fruition and we inch closer to legalization in the US. And number four, our continued strong operating performance and cash flow generation enabled us to resume share buyback activity with significant repurchases of more than $500 million during the first four months of our fiscal year. In addition, we announced this morning that we will execute an accelerated share repurchase program throughout the remainder of the second quarter to repurchase an additional incremental $500 million of shares. We believe this demonstrates our strong commitment to maximize shareholder value, and we are on our way to achieving our $5 billion goal of which about 50% will be in the form of share repurchases. This activity is also driving an increase in our EPS guidance for this year. Let's transition to a more detailed discussion of our performance in the quarter. As mentioned, our beer business is off to an exceptional start, delivering double-digit net sales and operating income growth as well as depletion growth of almost 11% in the quarter. Excellent execution during the Cinco de Mayo and Memorial Day holidays led to market share gains as Constellation remains a leading growth driver in the high end of the US beer market. Modelo Especial led the way as the number one share gainer in the entire US beer category and solidified its position as the number one brand in the high-end. It also became the number two brand in dollar sales in IRI channels, posting depletion growth of 12% for the quarter. Modelo Especial continues to fire on all cylinders with no signs of letting up driven by ongoing strong execution of retail, impactful execution of high-profile marketing activations, and a significant increase in digital, social, and e-commerce media for properties like UFC, Gold Cup soccer, and the Summer Olympic Games to name just a few. Corona brand family growth was driven by a return to growth in on-premise channels, which now represent approximately 11% of our beer business volume, which accelerated and nearly doubled since fiscal '21. During the quarter, we launched Corona Hard Seltzer Variety Pack #2, which continues to gain shelf space and is already more than half the size of Variety Pack #1 in dollar sales and appears to have about the same incrementality as Variety Pack #1 has to the entire portfolio. Meanwhile, Variety Pack #1 has held its distribution and velocity levels since the launch of Variety Pack #2, and our Hard Seltzer family remains in the number four market position. Earlier this month, we launched Corona Hard Seltzer Limonada, and while it's early in the launch cycle, initial consumer response has been very favorable. Ultimately, we believe the Hard Seltzer category will be dominated by a few large brands in the long run, similar to the light beer category, and we are positioning Corona Hard Seltzer to be one of those brands. We have plans to more than double our Seltzer and ABA capabilities this fiscal year and expect to bring another 5 million hectoliters of capacity online next fiscal year giving us the flexibility to continue to expand with new flavors, new packages, and even new platforms in this space. Overall, the Seltzer category remains competitive. We believe it's an important part of the high-end, and we plan to drive for success with our ambition to ultimately be a top-three player in this space. Pacifico continued it's strong momentum posting depletion growth of more than 35% for the quarter as the number four share gainer within the import segment driven by our focus on Gen Z consumers. As expected, during the quarter, Constellation's consumer takeaway trends in the off-premise IRI and Nielsen channels were muted due to lapping last year's pantry loading behavior at the start of the pandemic. Conversely, we experienced robust growth, especially in some of the more sizable, non-tracked channels, including the on-premise which grew depletions 250% versus last year when this channel was essentially closed and the liquor chains, which grew almost 13% in the first quarter. These levels of robust consumer demand are impacting availability for certain packet sizes and certain geographies. We are working with our distributor partners to ensure consumers can continue to find our brands on shelf throughout the summer, and we plan to make up some of this impact beginning in the third quarter. As a reminder, beginning in April of last year, our beer business had to significantly slow down production in Mexico due to COVID-19 restrictions. This led to out of stocks in the US marketplace during the summer month. Therefore, as we progress through our second quarter, which runs June through August, we'll start to lap these out-of-stock issues, and we're already beginning to see improving IRI trends. Despite the short-term supply challenges we're facing, the momentum of our portfolio is stronger than ever, and our outlook for the remainder of the year remains extremely bullish. Our view is reinforced by recent four-week IRI trends that show Constellation's beer business is outpacing the high-end and continues to significantly outpace the total US beer industry. Now, moving on to wine and spirits. Our transformation of this business to a higher growth, higher margin operation continues to gain traction, and we made additional progress during the first quarter on a number of fronts, including furthering our fine wine and craft spirits strategy, building a robust innovation pipeline, advancing our DTC e-commerce and digital capabilities, while also implementing disciplined pricing actions, taking out stranded costs and executing other cost and efficiency improvements. During the quarter, we made progress with the evolution of our fine wine and craft spirits business, especially as consumers returned to bars and restaurants in the on-premise channel. Our fine wine and craft spirits performance in the quarter was driven primarily by The Prisoner Wine Company, Robert Mondavi Winery, and High West. And we expect our enhanced capabilities in this space to begin to meaningfully inflect our wine and spirits business towards the higher end. Impactful innovations were also a driving force for growth during the quarter, including Meiomi Cabernet Sauvignon, Kim Crawford Illuminate, and The Prisoner Unshackled which were among the top 10 innovations across the high end of the US wine segment in IRI channels during the quarter. And we have a strong innovation pipeline planned for the remainder of the year, which includes the introduction of Woodbridge wine seltzers, The Prisoner's Saldo, Red Blend, and Unshackled Sauvignon Blanc plus Robert Mondavi Private Selection 100, a new lineup composed of 100% Cabernet Sauvignon and Chardonnay varietals. We've also been investing to build a world-class three-tier e-commerce team by expanding our sales and marketing resources, building new selling capabilities, investing millions of dollars where consumers shop, and integrating our teams to put focus and expertise closer to our accounts. While our three-tier e-commerce business is cycling the tremendous acceleration that was experienced last spring at the beginning of the pandemic, it is still growing 3 to 4 times compared to the spring of 2019 across beer, wine, and spirits. And the DTC portion of our e-commerce business saw impressive growth of 45% versus last year in the first quarter. We continued to forge partnerships with existing and emerging pure-play retailers like Amazon, Gopuff, and Wine.com. Omnichannel retailers like Walmart, Kroger, and Albertsons. And third-party marketplaces like Instacart and Drizly so that our consumers can shop whenever and wherever on their own terms. In addition, as part of our commitment to invest $100 million over 10 years and Black, Latinx, and minority-owned small businesses, we recently made investments in La Fete du Rose and Sapere Aude Sparkling Wine, both of these brands aligned with Constellation's premiumization strategy and present significant growth opportunities with differentiated high-end brands in growing sectors of the market. La Fete du Rose has taken a consumer-first approach to building a distinctive, authentic Rose brand that appeals to multicultural consumers. And Sapere Aude has taken an entrepreneurial approach to build a uniquely Californian sparkling wine with no residual sugars, low alcohol content, fine bubbles, and a refreshing brand identity that is simple and clean. We look forward to working with these brands and their dynamic founders to expand our access to key markets and consumers, and to help realize their full potential. At the same time, our Wine & Spirits results for the quarter were impacted by a convergence of isolated factors. First, our international brands like Kim Crawford and Ruffino, which are produced in their respective regions but sold primarily in the US are experiencing global supply chain logistics issues, including shipping delays and transport interruptions like so many other imported products. Second, we've experienced some start-up issues in certain markets associated with our route to market transition to Southern Glazer's Wine & Spirits, which now has distribution responsibilities across 70% of our US Wine & Spirits brand portfolio. This transition became effective April 1, and we expect the transition issues to be resolved in the second quarter. Lastly, like many ERP system implementations with a cut over to SAP, we have encountered a few transitional challenges which we don't see as a prolonged issue. Collectively, these issues caused some supply challenges in retail for some of our larger key brands which drove the negative depletion trend during the quarter. And while we are seeing lower inventory levels than normal for Kim and Ruffino, they continue to drive growth. Despite these temporary challenges, we are confident in our ability to accelerate the growth and profitability of this higher-end portfolio of industry-leading brands and achieving our targeted goal of 2% to 4% organic sales growth for the fiscal year. Moving on to Canopy Growth; the synergies between Constellation and Canopy Growth continue to create value for both companies. Canopy recently signed a US distribution agreement with Southern Glazer's Wine & Spirits for Canopy's Quattro CBD beverage portfolio which will be launched across seven US states with additional states to be added later this year, as well as their Martha Stewart CBD product lineup, which has seen early success extending into top-selling gifts for occasions, including Mother's Day and Valentine's Day was sold out prior to the holidays due to high consumer demand. Constellation and Canopy will continue to work closely together to develop Canopy's route to market strategy in the US. We remain optimistic about the prospects for federal US legalization during this congressional session and are bullish about Canopy's growth prospects and their ability to achieve profitability by the end of their fiscal year. As I close, I want to take a minute to thank our Constellation team members and our distributors and retailers for an excellent first quarter of business performance. Thanks to all of you, our strong portfolio of core brands across beer, wine, and spirits continues to gain momentum and we are well-positioned to deliver another strong year of performance consistent with our long-term goals. Our beer business continues to be a top growth driver within the US beer market and will delivering market share gains and accelerating depletion trends as consumer demand and take away remains extremely strong. Our higher-end Wine & Spirits brands continue to outpace the overall US market. We continue to strengthen our innovation capabilities to ensure we're capturing our fair share of growth in emerging categories. Our continued strong operating performance and strong cash flow generation allowed us to make significant share repurchases in line with our commitment to return $5 billion to shareholders by fiscal '23 and drove an increase in our EPS guidance for the year. And with that, I would like to turn the call over to Garth, who will review our financial results in the quarter. Garth? Garth Hankinson: Thank you, Bill. And hello, everyone. Our fiscal 2022 is off to a great start demonstrated by our strong segment operating results and cash flow generation. As Bill highlighted, our Beer business achieved double-digit depletion volume, top-line, and operating income growth. Our Wine & Spirits business is nicely positioned to drive accelerated growth and profitability from its portfolio of higher-end industry-leading brands, and our robust cash flow generation enabled us to resume share buyback activity, reaffirming our commitment to execute our goal of returning $5 billion to shareholders through dividends and share repurchases through our fiscal 2023. As Bill outlined, through June, we've repurchased 2.2 million shares of common stock for $523 million. In addition, this morning we announced that we entered into an accelerated share repurchase or ASR agreement to purchase $500 million of incremental shares which is expected to be completed no later than October of 2021. Please note that the ASR agreement constitutes of $500 million incremental share repurchase referenced in this morning's earnings release. As a result, we've increased our full year comparable basis diluted EPS to be in the range of $10 to $10.30. This range excludes Canopy equity earnings impact and reflects the decrease in weighted average diluted shares outstanding, driven by the year -- the June year-to-date share buyback activity as well as the ASR agreement or approximately $1 billion of share repurchases. As such, we are forecasting weighted average diluted shares outstanding of approximately $193 million for our fiscal 2022. We plan to repurchase additional shares during the back half of the fiscal year in excess of the $1 billion of share repurchases previously outlined. However, we do not know the timing and cadence, and as such, these expected share repurchases have been excluded from our guidance assumptions. We will continue to update our outstanding shares accordingly when we report quarterly earnings throughout the fiscal year. Now, let's review our Q1 fiscal 2022 performance in more detail, where I'll generally focus on comparable basis financial results. Starting with Beer, net sales increased 14% driven by shipment volume growth of over 11% and favorable pricing. The increase in beer net sales was impacted by some miss shipping days and supply shortages as a result of severe weather events impacting Texas and Northern Mexico, early in the first quarter of our fiscal year. Depletion volume accelerated from fiscal 2021 year-end trends and achieved nearly 11% growth for the quarter despite overlapping the peak of last year's pandemic-related pantry loading behavior, driven by continued strong demand in both tracked and non-tracked off-premise channels, as well as the return to growth in the on-premise channel. On-premise volume accounted for 11% of total beer depletions during the quarter, which accelerated and nearly doubled since fiscal '21. As a reminder, the on-premise accounted for approximately 15% of our depletion volume pre-COVID and accounted for only 3% of our depletion volume in Q1 fiscal 2021 as a result of on-premise shutdowns due to COVID-19. Lastly, when adjusting for one extra selling day in the quarter, the beer business generated nearly 10% depletion volume growth, and in Q2 depletion selling days are flat year-over-year. Due to continued robust consumer demand and muted shipment volume driven by supply challenges due to severe winter weather early in the quarter, depletion volume exceeded shipment volume during the first quarter, resulting in lower than normal distributor inventory on hand at the end of Q1. Let me assure you, that we are fully producing and shipping products out of our breweries, however, inventories will remain tight throughout the second quarter as we enter our peak summer selling season. As a result, we expect distributor inventory levels to return to more normal levels during the second half of the fiscal year. Moving on to beer margins; beer operating margin increased 110 basis points versus prior year to 42.8%. Benefits from favorable pricing, SG&A as a percent of net sales, and foreign currency were partially offset by unfavorable logistics and operational costs and increased marketing. The increase in logistics cost was driven primarily by increased obsolescence resulting from initial conservative expiration dates on new SKUs, partially offset by the transition of a portion of our co-packing capabilities to our Nava Brewary. The increase in operational costs was driven primarily by brewery costs, largely due to labor inflation in Mexico and increased headcount and incremental spend to bring the additional 5 million hectoliters online at Obregon. These headwinds were partially offset by favorable fixed cost absorption related to the overlap of reduced production in the first quarter of fiscal 2021 due to COVID-19 safety measures. Depreciation expense had a minimal impact during the quarter as we began to depreciate the incremental 5 million hectoliters at Obregon late in Q1 but expect depreciation expense to ramp up during Q2. Marketing as a percent of net sales increased 70 basis points to 9.4% versus prior year as we have returned to our typical spending cadence which is weighted more heavily towards the first half of the fiscal year. As a reminder, marketing spend in the first half of the prior year was significantly muted resulting from COVID-19-related sporting and sponsorship event cancellations and/or postponements. As communicated last quarter, given the current state of activities in Mexicali, we will be unable to repurpose this site for future use. As such, an impairment of approximately $665 million was recorded for the quarter, which was excluded from our comparable basis results. For full year fiscal 2022, we continue to target net sales growth of 7% to 9% which includes 1 to 2 points of pricing within our Mexican product portfolio and operating income growth of 3% to 5%. This implies operating margin to land in the low to mid-point of our stated 39% to 40% range. As previously discussed, we continue to expect our gross margins to be negatively impacted for the fiscal year as benefits from price and our cost savings agenda are expected to be more than offset by the following headwinds. First, a significant step up in depreciation expense and other brewery expansion costs relating to the incremental 5 million hectoliters that was completed at Obregon earlier in the fiscal year. Second, substantial inflationary headwinds across numerous cost components. And lastly, negative mix as we expand our ABA and Hard Seltzer portfolios. As it relates to timing and cadence, as mentioned earlier, during the second quarter we will begin to see an impact from depreciating the incremental 5 million hectoliters at Obregon, which will be a significant margin headwinds for the balance of the fiscal year. Additionally, due to benefits from our commodity hedging program, we did not experience the expected cost inflationary pressures during this quarter. However, we expect significant inflation headwinds to ramp up during the second half of our fiscal year as current hedges roll off. In addition, we believe the depth and duration of inflationary pressures are becoming more uncertain as the year unfolds. Lastly, we continue to expect marketing as a percent of net sales to be in the 9% to 10% range for full year fiscal 2022 which is in line with fiscal 2021 spend of 9.7% of net sales. We expect to invest significantly during Q2 of fiscal 2022 to support strategic initiatives and continue generating strong marketplace performance throughout the key summer selling season. As such, 2Q marketing as a percent of net sales is expected to be in the range of 10% to 11% versus Q2 fiscal '21 which came in 8.4%. Moving to Wine & Spirits; Q1 fiscal 2022 net sales declined 22% on shipment volumes down 38%. Excluding the impact of the Wine & Spirits divestitures, organic net sales increased 16% driven by organic shipment volume growth of 6%, smoke-tainted bulk wine sales, and favorable price and mix, while depletion volume declined approximately 8%. There are several dynamics to point out as it relates to organic net sales as well as shipment and depletion volume trends for the quarter. Starting with organic net sales and organic shipment volume; growth of 16% and 6% respectively was impacted by the following. First, smoke-tainted bulk wine sales accounted for approximately 4 points of the year-over-year organic net sales growth in the quarter. Second, from an organic shipment volume perspective, we under shipped depletions in Q1 fiscal 2021 as we were unable to fulfill excessive consumer demand driven by pantry loading, creating easy shipment volume compared to Q1 fiscal 2022. Conversely, we over shipped in Q1 fiscal 2022 as a result of the distributor transitioned to Southern Glazer's in order to ensure that they had ample inventory during the quarter as there was a delay in transitioning Constellation inventory from canceled distributors to Southern Glazer's. Moving to depletion volume trends; down approximately 8%, which were impacted by the following. First, we are experiencing a challenging overlap to the last year's pandemic-related consumer pantry loading behavior. Second, as a result of the SAP transition, we experienced challenges that impacted the shipping process early in the quarter. While we were able to rectify the situation during the quarter, the timing of shipments throughout Q1 negatively impacted depletions and created out of stocks for some of our larger key brands. Lastly, global supply chain logistics issues, including shipping delays and transport interruptions have also created out of stocks in certain areas for Kim Crawford and Ruffino which are imported from New Zealand and Italy respectively. As Bill mentioned, we believe these challenges are temporary and continue to improve, and we expect to refill retailer inventory in Q2. Moving on to Wine & Spirits margins; operating margin decreased 540 basis points to 22.9% as mixed benefits driven by the Wine & Spirits divestitures and favorable price were more than offset by margin dilutive smoke-tainted wine -- bulk wine sales and increased marketing and SG&A as a percent of net sales. Keep in mind that we're lapping lower marketing and SG&A spend in Q1 fiscal 2021 due to COVID and have a smaller business post the divestitures resulting in significant marketing and SG&A deleveraging impacting operating margins. For full year fiscal 2022, the Wine & Spirits business continues to expect net sales and operating income to decline 22% to 24% and 23% to 25% respectively. This implies operating margin to approximate 24% which is flattish to prior year on a reported basis, which shows significant margin expansion on an organic basis. Excluding the impact of the Wine & Spirits divestitures organic net sales is expected to grow in the 2% to 4% range. Lastly, please keep in mind that we will continue to lap significantly reduced marketing spend during Q2 as many of our planned media and event sponsorship investments were suspended or canceled in Q2 fiscal 2021. Furthermore, we continue to expect marketing and SG&A deleveraging as a result from the Wine & Spirits divestitures. As such, we expect marketing and SG&A to continue to be a significant drag to operating margins in Q2 fiscal 2022. Now, let's proceed with the rest of the P&L. Q1 corporate expenses came in approximately $55 million, up 8% versus Q1 fiscal 2021. The increase was primarily driven by higher consulting services and compensation and benefits, partially offset by favorable foreign currency impact. We continue to expect full year corporate expenses to approximately $235 million. Comparable basis interest expense for the quarter decreased 13% to approximately $87 million primarily due to lower average borrowings as we continue to decrease our net leverage ratio and ended the quarter at 3.06 times, excluding Canopy equity earnings. Our previous guidance assumed free cash flow would be used to pay down debt versus share repurchases. However, as discussed earlier, updated guidance now reflects approximately $1 billion of share repurchases through the first half. As such, fiscal [ph] interest expense is now expected to increase and be in the range of $360 million to $370 million. Our comparable basis effective tax rate, excluding Canopy equity earnings, came in at 21.1% versus 19.3% last year, primarily driven by higher effective tax rates on our foreign businesses. We expect our Q2 fiscal '22 comparable tax rate, excluding Canopy equity earnings impact to approximate 20%. However, we continue to expect the full year to approximate 19% as expected stock-based compensation benefits are weighted more towards the second half of the fiscal year. Moving to free cash flow, which we define as net cash provided by operating activities less CapEx. For Q1, we generated free cash flow of $602 million, which represents an 11% increase versus prior year reflecting strong operating cash flow and lower CapEx. CapEx totaled $114 million or 21% last year spend. This included approximately $86 million of beer CapEx, primarily driven by expansion initiatives at our Mexico facilities. Lower CapEx spend is primarily due to timing, as we have significant spending plan for the balance of the fiscal year. As such, our full year CapEx guidance of $1 billion to $1.1 billion, which includes approximately $900 million target for Mexico beer operation expansions remains unchanged. Furthermore, we continue to expect fiscal 2022 free cash flow to be in the range of $1.4 billion to $1.5 billion. This reflects operating cash flow in the range of $2.4 billion to $2.6 billion and the CapEx spend previously outlined. Moving to Canopy; in Q1 we recognized an unrealized loss of $745 million from the decrease in the fair value of our Canopy investments. This was excluded from our comparable basis results. The total pre-tax net gain recognized since our initial Canopy investment in November of 2017 is $366 million. In closing, I want to reiterate our expectations to continue to have significant capital allocation flexibility throughout our fiscal 2022, which will enable ongoing progress in returning cash to shareholders, while making strategic investments to support long-term growth opportunities. We believe the combination of strong cash flow and future growth prospects in both our Beer and Wine & Spirits businesses positions Constellation for success. The growth and margin profile of our high-end beer business is best in class and we expect it to remain as such well into the future while the transformation of our Wine & Spirits business is underway and we expect to continue to achieve margin expansion as we migrate to operating margins of approximately 30%. And with that, Bill and I are happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Bonnie Herzog from Goldman Sachs. Your line is now open. Bonnie Herzog: Thank you. Hi, everyone. William Newlands: Hey, Bonnie. Bonnie Herzog: Hi. I was actually just hoping to get a little more color on the out-of-stock pressures you've been facing. We're aware that you guys had temporarily paused [ph] orders during the end of May given how strong demand was in relation to your forecasted supply. So, first, are these caps still in place? And then specifically, have you seen these pressures maybe get better or worse in June? And finally, are there any specific impacts on certain SKUs or pack sizes or was this just more broad-based in your portfolio? Thanks. William Newlands: Sure. Obviously, the two main things driving the tightness of inventory are first and foremost, robust consumer demand. Our consumer demand has been well in excess of what we anticipated. And in my opinion, that's always good news. The second piece of that obviously was the point that Garth made and I made in my script, which is the power outage that occurred at the end of February, which has made for a somewhat tighter inventory position than we would normally want to hold. With that said, all of that will take care of itself over the course of the fiscal year. It's quite different, quite frankly, from last year where we mainly produced the SKUs that represented 75% of our total portfolio. This year, we're producing all of our SKUs. So, it's very different from what we saw last year, and while we do expect tightness during the course of the summer, we're working actively with our distributors to make sure that we are providing the right mix of product to make sure that we continue to supply the very strong demand we're seeing against our portfolio. Operator: Thank you. Our next question comes from the line of Nik Modi from RBC Capital Markets. Your line is now open. Nik Modi: Yes. Good morning, everyone. So, just quick housekeeping, Bill, you wouldn't mind sharing perspective on June depletions. I know the month isn't over yet, but any early color would be helpful? And then, the broader question is, during the pandemic, many brands including Constellation's portfolio of beer brands gained a lot of new households, and I was just wondering have you done a postmortem on what those new households look like? Have you recruited new consumers into the portfolio that you weren't recruiting prior? I mean any context around that would be really interesting. William Newlands: Certainly. So, first -- your first part of your question regarding June, and you're correct, well it isn't over yet. We're very enthused by how June is setting up and is certainly consistent with our long-term algorithm assuming we finished the last couple of days strongly. So, we think June is going to look pretty good. Secondly, relative to households, Nik, we obviously are continuing to develop and broaden our reach across our core brands, particularly in beer. If you think about Modelo, and Garth I think said this in prior quarters, we are rapidly increasing our penetration in the non-Hispanic community. It's a little difficult for us at this point to break that out of how much of that was COVID versus non-COVID because we're just seeing such an acceleration of Modelo not only in its core Hispanic market but in the broader market as well. So, it's a little difficult for us to put an exact percentage on any of those things. What I would say is, we are gaining consumers in our portfolio that has been obvious, and we expect that trend to continue. Part of that has been driven by our innovation agenda. We are meeting more consumer needs, more consumer drinking occasions than we ever have before because of our successful innovation agenda across the whole portfolio, across the company. So, I would expect that we're going to continue to see some acceleration of bringing new consumers in because we are opening up occasions for those people to come into our franchise. Operator: Thank you. Our next question comes from the line of Lauren Lieberman from Barclays. Your line is now open. Lauren Lieberman: Great, thanks. Good morning. I was curious about the beer pricing. It’s price mix was north of 2%, and I was just curious if you could talk a little bit about how much of that was driven by mix or if there is some greater pricing starting to come through in the market and your thoughts broadly on pricing for beer this year? Thanks. William Newlands: Sure. We continue to keep our algorithm about beer pricing as we have said on prior calls. We see it as a 1% to 2% growth profile over the course of the year, and we're sticking with that. We think that's appropriate given all the factors that we weigh when we decide about what we're going to do with our pricing. I think it's also important to say our number one growth driver in our business continues to be Modelo, which is very accretive on a mix basis. So, as we continue to see all of our businesses grow, when you see that kind of acceleration in Modelo, it certainly is mix accretive to us as well. So, I think both of those things were additive in the quarter, and we would expect them to be additive over the course of the year. Operator: Thank you. Our next question comes from the line of Kaumil Gajrawala from Credit Suisse. Your line is now open. Kaumil Gajrawala: Hey. Thanks, everybody. Digging into the supply or maybe connecting the supply issues with depletions and how you're thinking about inventories getting better in the back half, does that -- think that you being running at a 10, looks like you are continuing to run at [indiscernible] adjusted, do you need depletions to really start to come off, maybe back to that high-single-digit range to get inventories back to where you want them to be or do you feel like just the abatement of any of the supply pressures will be able to get you to where you want to be? Thanks. William Newlands: We'd expect that the abatement of supply issues to take care of themselves over the course of the year. Remember, I think we probably made this reasonably clear. We lost several points of top-line growth because of the power outage that occurred at the end of February in Northern Mexico and in Texas. So, we certainly had a muted shipping scenario. We will expect to pick that up over the course of the remainder of the year. And we're still expecting demand to be very solid. So, we are fully expecting to meet the demand that we'll see in the marketplace, which we continue to say will be in that 7% to 9% range over the course of the year. Operator: Thank you. Our next question comes from the line of Sean King from UBS. Your line is now open. Sean King: Great, thanks for the question. Yes, I appreciate the color you gave on the on-premise at 11% and I guess that's greater than 250% growth for beer. But was that at the close of the quarter? Is that like the average of the quarter overall? And inside that, what are you seeing in terms of draft amount [ph]? William Newlands: Yes, that's the average over the course of the quarter. As Garth pointed out in his remarks, that still is below what we were pre-pandemic but it's a really big increase to what it was last year. So, we still think certain markets are developed more quickly than others as we've said in prior discussions, as well. So, we certainly expect that's going to continue to be an accelerator over the course of the summer. And let's face it, I think it would be fair to say there's a lot of pent-up consumer demand to simply go out of your home, that people are looking forward to the opportunity as some of the COVID restrictions come off. We would expect to see some continuing acceleration in the on-premise channel as we progress through the summer, recalling that the on-premise channel was a fraction of what it was last year versus the prior year. So, we think that's all are going to take good care of itself as the year goes on. Operator: Thank you. Our next question comes from the line of Bryan Spillane from Bank of America. Your line is now open. Bryan Spillane: Good morning, everyone. A question for Garth. Just wanted to follow-up on the commentary around inflation becoming more uncertain. So, just maybe if you can comment on two things related to that. What areas -- so what types of inputs are becoming more certain, is that freight, is it packaging, labor cost? Just trying to understand kind of where the potential pressure points could be? And then, if you could tie to that as well, if we step back today versus where we were at the beginning of the fiscal year, can you give us a sense of just how much flexibility has been eaten up by inflation coming higher? Or are you in the same place in terms of just flexibility to hit your profit growth goals this year? Thank you. Garth Hankinson: Yes. Thanks, Bryan. And just as a reminder, when we issued our Q4 guidance, we talked about inflation and we said that, overall, we are expecting inflation kind of in the low to mid-single-digit range. And that was taking into account that on any given line item within our cost structure we were seeing the inflation kind of the low-to-high single-digit range. We have -- as we talked about at that time, we have a pretty effective hedging policy in place and we entered the year in a good position as I said. So, as we look out this year, first of all, the outlook for inflation still kind of remains the same. Our outlook as well as sort of the external advice we get on this is still that inflation is going to have a bit of a spike but it's going to be temporary in nature. The question just is like how temporary, right? It seems as though that kind of blip, it might take a bit longer to kind of come down from there. And so, the things that we're watching mostly right now really are around as you indicated, logistics and transportation, and labor, and those things are somewhat intertwined if you will. The labor market has made it difficult to get dedicated trucking lines and so, that's becoming more and more competitive. So, that's absolutely a concern. We continue to watch aluminum and then we look at natural gas to -- or glass, right? Glass, because glass is impacted by natural gas. So, those are the areas we're kind of most watchful for as we go through the year. I said it, as we sit here today, we're feeling like we're in a similar position to be able to cover our inflationary headwinds as long as they don't get significantly worse as we go through the year. Operator: Thank you. Our next question comes from the line of Eric Serotta from Evercore. Your line is now open. Eric Serotta: Great, thank you. Bill, hoping to get a little bit more granularity as to what you're expecting from the Hard Seltzer category and the broader ABA category or the ABA category more broadly? And related to that, you reiterated that you're more than doubling Corona Seltzer's capacity this year and you'll have the additional 5 million hectoliters of ABA capacity at Nava I believe for next year. If your forecast on ABA growth don't pan out, how flexible is that capacity to produce traditional beer? William Newlands: So related to the Hard Seltzer capacity point, we're still expecting that the Hard Seltzer category is going to grow somewhere in the 30% to 50% range, somewhere in that range this year overall. And obviously, we did roughly 10 million cases last year with one SKU. We've introduced our second Variety Pack. We're very excited about that process so far and Limonada is just hitting the market really as we speak. I got to remind you again, what I said earlier, which is despite doubling the size of our ABA and Hard Seltzer capability for this year, the number one growth driver in our portfolio will remain Modelo, irrespective of that significant growth. So, we are very comfortable with our growth profile across the business. What I would say is, this is -- we do have significant flexibility around the capacity that we put in and how that can be used within the business. And many of the things like packaging and so forth, really serve as the entire business anyway. So, we do have a fair amount of flexibility depending on if there's any changes in any of the particular sub-segments of the beer category at any point in time. We've worked very hard to make sure there is flexibility within our production capacity capabilities so that we can adjust to any change in consumer demand. Operator: Thank you. Our next question comes from the line of Chris Carey from Wells Fargo Securities. Your line is now open. Chris Carey: Hi, thank you. So, I actually have a question just about Wine & Spirits. Price mix has been a good story in the business, that's accelerated this quarter, obviously, margins got hit. I'm just trying to frame where you think we are on the path to the medium and longer-term margin targets here? We knew there was always going to be a step back before recovery and certainly, it seems like the price mix and premiumization of the portfolio can deliver what you think it can. But we also have a much more inflationary backdrop and things are evolving. So, I wonder if you can just maybe take a look at this quarter and how it informs how you're continuing to look at the capacity of this business to deliver those margin targets over time and perhaps the timeline on what you think that can happen? Garth Hankinson: Yes, Chris. Thanks for the question. So, as you indicated, the topline is doing quite well. So, we're very pleased with our transformation as it relates to top-line growth. In terms of the margins journey, what we've always said around that is, it was going to take us about two years post divestiture to get to the 30% operating margins. And in order to get to about 30% operating margin, it was going to take a number of different things. There was pricing, there is mix, there is the cost takeout that we've talked about previously, stranded cost takeout of around $130 million, not all of which will fall to the bottom line. Some of that, we will reinvest behind the brands to make sure that we have strong brands that can generate the topline growth, as well as other initiatives around footprint optimization as a result of that the Gallo divestiture, not only did we share a large number brands but we also shared seven wineries, seven facilities with that transaction. So, there is a footprint optimization, as well as doing some cost optimization to make sure that the products we're putting in the bottom-most reflect what the consumers are looking to get when they pick up those brands. So, that -- we're well underway. We certainly didn't sit back and wait for the transaction to close to identify those cost savings, those initiatives. So, we're just now executing against those. But as you say, we're at that interim period where the business is a bit deleveraged. And so, until the rest of those cost comes out, we -- you will see that kind of -- that downward blip as you noted this year as we move to the 30% operating margins at the end of sort of two years post divestiture. Operator: Thank you. Our next question comes from the line of Kevin Grundy from Jefferies. Your line is now open. Unidentified Analyst: This is actually Greg [ph] on the line for Kevin. Just one quick follow-up question on some of the on-premise channel trends that you guys have been seeing. Many of your peers have noted that it's been running in front of plan so far in terms of the number of reopenings, the velocity that they've seen. You guys gave some helpful context on what you've seen over the last quarter, but maybe could you talk about how your expectations for the full year have changed? Have you seen the reopening phase faster than you thought it would be? And maybe how you think that would impact full year results? Thank you. William Newlands: Sure. Let me take that one, Greg. The -- we have seen it accelerate tremendously. But as we've seen over the course of the last 18 months around the pandemic, you often see some things where you get starts and stops and things improve in certain states and don't improve in other states, and so on and so forth. I think the important thing from our perspective to look at is, while we've seen 250% growth in our depletions in the quarter versus prior year, the overall percentage of our business that the on-premise represents is still a bit less than it was in fiscal year wherein calendar -- excuse me, calendar year '19. So, we still think there's still some opportunity and acceleration to come. We also have had an exceptional -- and our distributor network does an exceptional job of winning the times that matter, things like 4th of July, Labor Day. We did it with Cinco de Mayo, we did it with Memorial Day. So, we still think there's going to be some good opportunities for acceleration. The challenge to predict how much of the channel shifting that occurred? There was a massive amount of channel shifting that occurred a year ago when you went heavily to the off-premise. You're now seeing the on-premise comes back on and the IRI and Nielsen data has been somewhat muted. So, we also have seen, as we noted in our scripts, a significant increase in our three-tier e-commerce and direct-to-consumer across the business. So, how all those channels sort of shake out is a real question. I think the encouraging part remains. The consumer demand against our business across all channels that we can track has been extraordinarily strong and we're excited and we think that will continue irrespective of which channel the consumer chooses to engage in. Operator: Thank you. Our next question comes from the line of Andrea Teixeira from JPMorgan. Your line is now open. Andrea Teixeira: Yes. Thank you for taking the question. So, I wanted to just follow on this one, this last commentary Bill on where consumers are engaging. And it seems like, as you said -- you just said now that it's still below the calendar '19 level. So, can you comment a little bit of how you see that transition? Like your consumers are still engaging at home and the consumption of your -- obviously, your big brands is still very stronger at home despite the shift and how you're seeing that? And then, just a clarification on also on the inventory and shipments. Is it fair to say that given that you have a very easy comp on the production in April, right? So, going to have a lot of like inventory that you haven't built yet, but is still on transit from Mexico. Is that something that gives you some comp for that? Even though you said you only see the normalization by the third quarter, that the second quarter is still going to be a very strong shipment quarter. William Newlands: Sure. So, let's start with question around the on-premise. Keep in mind, based on what we can see, per capita consumption has remained pretty steady throughout the pandemic. It's just that where and how people consume has moved around quite a bit. So, it's really difficult to precisely predict how consumers are going to operate. And I think it's going to vary, as I said a moment ago, quite a bit by state depending on the individual restrictions and whether or not certain states are still allowing takeaway from a restaurant environment for alcoholic beverages, some are not. So, until all this dynamic plays itself out, I think it's going to be very difficult to predict exactly how the consumer will land. Other than I would say some of the sheer shopping behavior where you see three-tier e-commerce and direct-to-consumer changes are going to continue. As we've said in prior calls, we have made major investments to increase our capability in three-tier e-commerce and direct-to-consumer, and I'm very glad that we did. It's playing out well and it's showing tremendous takeaway in those sectors which have grown around the pandemic. As it relates to inventory, we continue to believe we're going to have a very solid year. We're in a good position to make up the challenge that was the one-time challenge around the power outage that occurred in February, and we expect to have, as we've said, a very strong year and that I would expect would include the second quarter which is upon us. Operator: Thank you. Our next question comes from the line of Steve Powers from Deutsche Bank. Your line is now open. Steve Powers: Hey, guys. Thank you very much. I know you've got a lot of questions already, Bill, but just to round out that last topic on beer supply. I guess is there a ceiling we should think about in terms of how much you're just physically able to ship in 2Q? I think consensus has you shipping around 100 million cases in the second quarter relative to the 85 million in the first quarter. And I guess just given all that you said, I'm just trying to understand or dimension whether that kind of step up is doable in broad brushstrokes or in the back half? And then, I -- what I really wanted to ask about was for Garth, just -- you ran through a number of items, very helpfully that will kind of weigh -- explain the beer margin trajectory sequentially and what will weigh on beer margins over the remainder of the year. If you could provide any more detail there, may be a rank order just in terms of the items we should be focusing on is having the biggest impact there, that would be very helpful. Thank you. Thank you to both. William Newlands: Yes, you bet. So, let me start with the first half, and then Garth will cover the second half. The one thing that we haven't mentioned today, but it's an important one is -- but we did mention it in prior quarters. Our Obregon, opening of the extension of Obregon was delayed roughly a quarter last year -- at the end of last year, because we weren't able to construct during COVID. So, that is certainly going to help our inventory position as we move forward as that's now up and running. It's not running as efficiently as it will once we get everything locked and loaded because it's just a normal startup. But it's certainly helping the situation and we certainly expect to be able to meet consumer demand during our key summer selling season as I said earlier. We're being -- we're working very carefully with our distributor network and our retail partners to make sure that we are able to meet the demand. Admittedly, the demand has been robust and continues to be very strong, but we are expecting to be able to meet that demand, and certainly, Obregon is a big helper in that area. Garth, you want to take that out? Garth Hankinson: Yes. Just to follow-up on the margin question. So, as we stated in Q4, really, it's those three big drivers of depreciation, inflation, and mix, and those are really kind of equally weighted in terms of the impact on margins. So, on the depreciation front, that was -- we have an increase of about $65 million this year, and that's comprised of Obregon full year [indiscernible] in the glass joint venture [ph], depreciation as well as some other things. Inflation, I think we've covered, and the fact that it's more in the second half of the year as our hedges kind of roll-off. And then mix, I think mix is also something that's going to impact us again more as we go through the year because we started the year really with kind of one SKU in Corona Hard Seltzer Variety Pack #1, Corona Hard Seltzer Variety Pack #2 was just launched at the beginning, and then we launched Limonada here in June. So, there will be a more mix impact as we go through the balance of the year as well. But really it's equally -- the impact is equal across those three buckets. Operator: Thank you. Our next question comes from the line of Laurent Grandet from Guggenheim. Your line is now open. Laurent Grandet: Thank you. And hi, everyone, and thanks for squeezing me in the queue. Up to recently [indiscernible] penetrate most from these spending household about 15% for the right kinds were to a record as a test was not pleasing [indiscernible]. So, now with new bolder flavors, Seltzer and brown/black [ph] targeting specifically Hispanic, we are seeing household penetration within Hispanic going up to 25 to 35. So, my question is do you see that as a risk to your portfolio of Mexican beer? And if not, why? And what are you doing to reach more Hispanic consumer with your current Seltzer portfolio? Thank you. William Newlands: Certainly. Well, as you know, we are very fortunate with our Mexican beer portfolio to have the strength of brands that we do. These are iconic, authentic brands from Mexico that our Hispanic community is very much behind. And we continue to see strength and growth. As I've said you, I think -- not to you, but I've said in prior calls, we continue to see opportunities with Modelo/ The household penetration with Modelo despite the rapid growth of Modelo is still not at the level of Corona as an example. We're also seeing over-development in the Hispanic community with our Corona Hard Seltzer. So, we are reaching into that community by again meeting new occasions and meeting new consumer needs with those particular products. So, we are very comfortable with the growth profile that we see in the Hispanic community with our iconic portfolio from Mexico and we think the Seltzer element is going to be an important and hopeful part of continuing the relationship with the Hispanic community, recognizing that we're also doing a great job of expanding those brands into the non-Hispanic community as well. Operator: Thank you. Our next question comes from the line of Trevor Stirling from Bernstein. Your line is now open. Trevor Stirling: Hi, good afternoon, Garth, and Bill. Two quick questions from my side, please. As you sit today and you compare with three months ago, have anything changed to change your point of view either for F22 or the outlook? I think the second thing related to that, given the cadence of inflation you talked about given the aluminum spot price staying as high as these and those hedges rolling off, historically, you've had that 1% to 2% pricing algorithm. Do you think that might need to change 12 months out? William Newlands: I'll take the price part, Garth. Maybe you take the first part. Relative to the price, we continue to believe 1% to 2% is going to be our long-term expectation. We think that balances appropriately the dynamics that occur with price sensitivity when you raise your price and recognizing, it does obviously help you cover any inflationary effects during the course of the year. So, we're pretty comfortable, that algorithm of 1% to 2% is the right answer, that balances all of those factors and we would see that continuing well into the future. Garth Hankinson: Yes, in terms of the first part of that question, the Q1 changed our point of view for the full year. I would say that at this time, it's too early for us to make any changes to our outlook for the year given one-quarter end. The one thing that I would highlight, right, as Bill noted in his script, depletions in our beer business exceeded our expectations as well as the expectations of our distributor, our retail partners. So, that's something that we'll watch very, very closely as we move through Q2 and through the balance of the year. And look, when -- as we go through the year and we do see changes to our business, we'll be sure to update you all on our guidance expectations. But as of right now, we're very comfortable with the guidance that we provided and reaffirm today with a bit of a tick-up on our EPS related to the share repurchase program. Operator: Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Bill Newlands for closing remarks. William Newlands: Thank you, everyone for joining our call today. I think it should be clear, the fiscal '22 is off to a strong start, providing us with continued momentum as we head into our key summer selling season. Our powerful collection of consumer connected brands across beer, wine, and spirits continues to gain traction and we are well-positioned to deliver another strong year of performance consistent with our long-term goals. Our robust cash flow generation allowed us to make significant share repurchases in line with our commitment to return $5 billion to shareholders by fiscal '23 and we look forward to updating everyone throughout the fiscal year, as we expect to make continued progress during fiscal '22. In closing, I'd like to wish all of you a happy 4th of July and hope that your celebrations with family and friends include our fantastic beer, wine and spirit products. Thank you, again, everyone and have a good summer. Operator: This concludes today's conference call. Thanks for participating. You may now disconnect.

Operator: Hello and welcome to the Constellation Brands Q4 Fiscal Year 2021 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. Following the prepared remarks, the call will be open for your questions. Instructions will be given at that time. I would now turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations. You may begin. Patty Yahn-Urlaub: Thanks, Joanna. Good morning and welcome to Constellation's year-end fiscal '21 conference call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements we make on this call. Before turning the call over to Bill, similar to prior quarters, I would like to ask that we limit everyone to one question per person, which will help us to end our call on time. Thanks in advance, and now here's Bill. William Newlands: Thank you, Patty. Good morning and welcome to our year-end call. It's now been a little more than a year since the onset of the pandemic and for many it's been one of the most challenging years in recent memory. At this time last year, we outlined our philosophy for managing the business and navigating through this period of uncertainty. We committed to making decisions that prioritize the physical and economic safety, health and well-being of our employees. We committed to remaining consumer obsessed, relentlessly focused on doing all we can to meet consumer needs. We pledged to continue managing our business with discipline ensuring appropriate balance between short-term needs and positioning Constellation for sustainable long-term success and we pledged to continue making decisions aligned with our long-term strategic vision. This is what best of class companies do in periods of uncertainty and I'm extremely proud to say that is exactly what our team delivered over the course of the physical year and then some. Working together with our distributor and retail partners, we overcame numerous headwinds posed by the pandemic to achieve strong earnings growth and record free cash flow, while significantly reducing debt. This strong performance was led by our beer business, which delivered double-digit operating income and organic net sales growth for the fiscal year. Looking forward, we not only have an exciting innovation lineup for the coming year, but we expect our core portfolio to generate robust growth well into the foreseeable future, and therefore have plans in place to execute our next increment of capacity expansion in Mexico. Our Wine and Spirits premiumization strategy gained significant traction during the fiscal year and the divestiture of several lower end wine brands positioned this business for enhanced growth and profitability going forward. In addition to the strong performance of our business units, our company also stepped up to help industry partners and communities impacted by COVID and natural disasters and to lend our voice and support in combating social injustice in the U.S. This commitment continues through our additional 1.75 million contribution to the National Restaurants Associations Education Foundation, announced earlier this week to support on premise recovery efforts, as well as our recent 10 million contribution to the Clear Vision Fund, designed to invest in minority-owned businesses, primarily those operating in underserved black and Latinx communities and through our most recent efforts to address the disturbing trend of violence against people of Asian descent across the country. In this regard, let me once again extend our deepest sympathies to victims of these deplorable acts and our continued support of members of the Asian community in this difficult time. Our strong business performance coupled with learnings from the past year and planned investments to enable growth, along with our continued commitment to making a positive impact on the world around us positions Constellation for continued success in fiscal '22 and beyond. Now, let's move to a more detailed discussion of our results and our plans for this year. Fiscal '21 marked the 11th consecutive year of growth for our beer business and reinforced our leadership position in the high-end of the U.S. beer market. We drove exceptional performance across our beer portfolio, led by our Casa Modelo brand family, including Modelo Especial, Modelo Negra and Modelo Chelada, which remains one of the biggest forces in the U.S. beer industry, delivering more than 13 million cases of growth to the beer category last year. Modelo Especial achieved yet another year of double-digit growth and now stands as the number three selling beer in the U.S. in dollar sales with more than 145 million cases sold last year, the only imported beer to ever surpass 10 million barrels in volume. Modelo Negra continues to be the number one dark beer in the U.S. category. While Modelo Chelada once again achieved double-digit growth and remains the number one Chelada brand in IRI channels. The Modelo brand family is on [fuego] [ph] but we're far from done. We have a tremendous amount of momentum with Casa Modelo and we continue to have huge growth opportunities in front of us. Our core Hispanic drinker remains the foundation of our business representing more than half of our volume, yet we're still growing volume, penetration and by rate with them. We're also making great progress with the non Hispanic consumer, where we've grown penetration by 25% over the last two years. And while we continue to grow simple distribution, our effective distribution levels remain below industry leaders. All this represents a massive opportunity to continue our momentum and double-digit growth for this brand family well into the future. During fiscal '22, we will continue to focus on making Modelo more top of mind with all consumers as we execute more high profile activations to further engage our drinkers and expand portfolio options to appeal to new consumers and unlock new occasions. These efforts will be supported by a 50% increase in digital, social and ecommerce media. Modelo will once again be an official sponsor of the Gold Cup soccer tournament, and will be a major advertiser for the brand throughout the high profile 2021 Summer Olympic Games. We will also be delivering high profile activations, to our biggest sponsorship as the official beer of the UFC. UFC's increasing popularity is allowing us to reach more young multicultural drinkers than ever. This past year, UFC reached over 41 million viewers on TV, grew their social following by 70% and became the number two largest sports property on YouTube. Modelo Chelada has been an extremely successful platform for us as well and in fiscal '22, we will take our next step on the path to growth by launching our newest flavor Modelo Chelada Piña Picante. Beyond Cheladas, we also have an opportunity to expand into the rapidly growing consumer trend of betterment by launching Modelo Cantarito styled cerveza, a refreshing better for you lighter lager made with a hint of real grapefruit, orange and lime juice. With only 100 calories it delivers lower calorie beer, but with a flavorful and authentic experience, as it was inspired by the traditional Cantarito cocktail from Jalisco, Mexico. And to top it off, consumers love the idea. This is the highest scoring Modelo new product concept we've ever had. As you can see, Modelo is poised for another great year in fiscal '22. Moving on to our next powerful brand family, the Corona brand family is thriving and embracing a new year full of possibilities. Our flagship Corona Extra brand remains the number six U.S. beer brand, growing IRI dollar sales by 11% and surpassing 2 billion in retail sales last year. In fiscal '22, you'll see a refreshed Corona, which will be enabled through a master brand strategy where Corona equities unite the entire family and each sub-brand delivers unique benefits to play to distinct occasions, consumers and motivations while staying true to Corona's DNA. We have a full year of master brand retail initiatives on-premise programs ready to go as markets reopen and experiential plans to play to consumers' passion points, like music and live sports. For Corona Light, our focus is on general market consumers, particularly females who seek important tastes with fewer calories. For Familiar, our focus is on acculturated Hispanics who shop in Hispanic dominant accounts. To ignite are Corona Originals, we will invest in national media spending across digital and social channels, as well as national English and Spanish language TV with a significant presence in major live sports properties such as March Madness, the NBA Finals, Gold Cup soccer and the NFL. The hotline will return to support our sports programs with Kenny Smith and Tony Romo covering the lines. Last year Corona's new La Vida Más Fina campaign was a smashing success and brought Corona back to the center of cultural conversation. With its Snoop and Bad Bunny content, generating an impressive 1 billion impressions across TV, digital and social. Snoop and Bad Bunny will be back this year to share their fine life wisdom along with new friends. This brings us to Corona Premier; Corona's answer to capturing growth in the exploding betterment segment. In fiscal '21, Corona Premier route depletions volume almost 20% and increased its penetration at a faster rate than its major competitor and other domestic lights, demonstrating we're successfully trading up consumers. Our golf and active lifestyle platforms for this brand will be supported by a retail program, continued strong media investments in key tournaments and are distinguished sponsorship of the U.S. Open at Torrey Pines in June. Moving on to Refresca which is Corona's answer for flavor seekers. Because of Refresca's unique flavor experience, it has been incremental to Constellation and the category bringing in a different consumer from beer and hard seltzer with a Hispanic index of 205 versus the FMB category. So we are happy to be able to bring the Corona Refresca variety pack back in fiscal '22 after a hiatus last year during the pandemic. We will also build on the initial success of Refresca by extending the brand into the growing high ABA F&B space with the launch of Refresca MÁS 24 ounce single serve cans with 8% ABA in mango citrus flavor. And this brings us to Constellation's most successful innovation yet, Corona hard seltzer. With only one SKU, the Corona hard seltzer became a number four brand family in a very short period of time, while consumers have flocked to this category, Corona's iconic image, multicultural consumer base and reputation as the number one most refreshing beer has allowed Corona hard seltzer to recruit new drinkers and expand the segment. In fact, Corona hard seltzer's year one volume delivered approximately 90% incrementality to our portfolio and continues to be the second fastest moving hard seltzer for brands with significant distribution. With no signs of slowing down, the Corona brand family expects ABAs to be a significant component in its future growth by expanding its base seltzer proposition and launching incremental innovation. We will continue to focus on growing distribution on variety pack number one, while introducing new SKUs to satisfy different tastes, occasions and channels. Our second variety pack is now in market with pineapple, strawberry, raspberry and passion fruit flavors. We tested a variety of flavors and consumers told us they wanted familiar great tasting flavors that pair well with a lime from Corona. In keeping with this theme of authenticity, amplified flavor and natural betterment attributes, we're excited to announce Corona hard seltzer Limonada, which is launching in June in a 12 pack variety pack, and will be line priced with Corona hard seltzer. Inspired by traditional Mexican recipes, Limonada will break the mold by delivering authentic flavor with a splash of real lemon and lime from Mexico juice and only 100 calories. To support the expansion of all Corona hard seltzers including Limonada, we plan to invest approximately 60 million across all marketing touch points to maintain the number one share of voice in seltzers during the critical summer months and will include investment in premium sports properties, like March Madness and the NBA. The plan also includes significant levels of Spanish language support to lean into Corona strength with Hispanics. Last year, nearly 20% of Corona hard seltzers volume came from Hispanics, an index of 136 versus the seltzer category. While we're on the topic, let me address the recent lawsuit filed by one of our competitors in opposition to our use of the Corona trademark for Corona hard seltzer. Earlier this week, we filed a motion to dismiss this lawsuit, as we find these claims to be completely without merit, a blatant attempt to restrain a strong and well established competitor in a high growth segment of the U.S. beer market. We have fully complied with the terms of our sub License Agreement, and we will vigorously defend our rights under our sub License Agreement and applicable law. We expect it will take several months for a court ruling on our motion to dismiss. In the meantime, we continue to operate business as usual, as we expect our plans in the ABA and hard seltzer space, where we fully expect to further build on our momentum for many years to come. Bottom line, the Corona family growth roadmap is focused on three strategic priorities in fiscal '22. First, we will reignite the core with a refresh Corona complete with new packaging best-in-class advertising, leadership levels of media and marketing investment and culturally relevant activations. Number two, we will execute breakthrough innovation which includes accelerating growth and betterment beer. And third, we will establish a beachhead in the ABA category. But let's not forget Pacifico. Let me repeat that. Let's not forget Pacifico, which is the fastest growing major Mexican import beer brand in the U.S. on a dollar sales basis and is on its way to becoming the next scalable national beer brand in the Constellation portfolio. We're doing things differently this year with the Pacifico with a focus on Gen Z consumers whose attitudes over index with Pacifico's independent spirit. Our action sports and cause initiatives resonate strongly with their passions and values. For the first time, we'll have national coverage on major Gen Z relevant digital and social platforms, including Hulu, Instagram, Snapchat, Twitter and Twitch. This will be year four of Pacifico being the official beer of the X Games, both summer and winter. 2021 is also an Olympic trials year and we'll continue our strong partnership with the U.S. ski and snowboard teams with activations at competitions across the U.S. and robust media support on NBC. I'm also excited to introduce Pacifico's first ever innovation created for Gen Z consumers with our first for new flavors. Pacifico's Citrus Agave Lager, [indiscernible] inspired and made with a hint of agave, sea salt and lime flavor. We're launching this month in two test markets San Diego and Dallas with three SKUs. We look forward to sharing these results and showing how innovation can grow the entire Pacifico portfolio. From an operational perspective, I'm pleased to announce that we recently completed the 5 million hectoliter expansion of our Obregon facility, which when added to our existing capacity provides incremental flexibility. As is typical, it will take some months to fully optimize this operation over the coming months. Because our beer business continues to significantly outperform the U.S. beer market driven by ongoing robust consumer demand, we are absolutely committed to satisfying this growing consumer demand for our iconic brands, including Corona, Modelo, Pacifico and Victoria. As such, we have developed plans to invest in the next incremental capacity in Mexico that will provide long-term flexibility to equip us with the next necessary production to capture the continued momentum and growth opportunities we see in the high-end segment of the U.S. beer market, which has consistently grown in mid-to-high single digit range and is expected to continue to grow at these levels into the foreseeable future. It will also provide incremental flexible capacity that will allow our breweries to operate at sensible utilization rates and deal with unplanned challenges from things like weather related issues that impacted the business during our recent fiscal year end. These have been key learnings from the pandemic. Our investments will not only support the expected future growth of our core portfolio, but for the emerging ABA or alternative beverage alcohol space and hard seltzers. Meanwhile, in addition to these initiatives, we continue to engage in constructive conversations with the Mexican government as it relates to our long-term plans for production in Mexico. Together with government officials, we're exploring options that include finding an alternative location in the southeast of Mexico that has adequate water supply and a skilled workforce. Garth will provide additional financial details in just a few minutes. To sum it up, the U.S. beer category is healthy and exhibiting strong growth led by the high-end segment. Last year off premise channels within the beer category grew 15% with the high-end growing more than 25%. The velocity of our portfolio as well as the growth and margin profile of our high-end beer business is best-in-class. We're deliberate about our innovation efforts to ensure they're focused and disciplined and we're well positioned against where the consumer is going and the future of this industry. We have significant distribution runway for our healthy core portfolio, we will continue to capitalize on the growth of the Hispanic population and the premiumization of the U.S. middle markets. And we are focused on ABA growth leveraging our core brand equities because we see this as a significant growth opportunity as well. As a reminder, our fiscal year started March 1 and our first quarter runs through the end of May. As most of you know last year, this coincided with the beginning of the pandemic when we experienced robust consumer demand for our products that lead to record trends in off premise tracked channels as consumers were in the pantry loading phase of the pandemic. In addition during the spring of 2020, we slowed production in Mexico due to COVID which led to some out of stocks in the U.S. marketplace during summer months. As a result should expect to see muted IRI and Nielsen trends early in our fiscal year due to the year-over-year unfavorable overlap until we start to overcome last year's out of stock issue when we expect our scanner data to improve significantly. However, recent four week IRI trends show the Constellation's beer business is significantly outpacing the total U.S. beer industry and is outperforming the high end of the beer market. Let's now move on to results of our Wine and Spirits business. Fiscal '21 was a year of significant progress for our Wine and Spirits business. The Gallo deal and related divestitures allowed us to sell several lower end brands; we established category leading digital capabilities. We optimized our route to market to accelerate performance and built a robust innovation pipeline while driving solid results in the face of a very challenging external environment. In fact, our retained Wine and Spirits portfolio excluding divested brands delivered net sales growth of 5% for the year, driven by double-digit volume growth from Meiomi, Kim Crawford and The Prisoner brand family. These same brands also achieved double-digit distribution gains in off premise channels last year. Impactful innovations were also a driving force for growth and included Meiomi Cabernet Sauvignon, Kim Crawford illuminate and the Prisoner Unshackled, which became the number one high-end new brand in IRI channels in fiscal '21. The Wine and Spirits business is well positioned to consistently grow net sales low to mid single digits and produce operating income growth ahead of net sales to achieve a 30% operating margin over the medium term. This will be achieved by the business delivering a margin accretive mix, implementing disciplined pricing actions, taking out stranded costs and executing other cost and efficiency improvements. In the near term, we expect fiscal '22 organic net sales growth in the 2% to 4% range. And what gives us confidence in these goals, we have solid plans in place to assure that our Wine and Spirits transformation focused on premiumization continues to gain traction. Our high-end brands are well positioned to drive mix in margin expansion. And we plan to continue to take price on select products within select markets throughout the year. We'll leverage the strong equity of these key core brands while building momentum through fully integrated marketing campaigns and partnerships to drive distinctive and consistent messaging that creates demand for these brands, including Kim, Meiomi, Woodbridge, Ruffino, the Prisoner, High West and Svedka. We remain committed to driving mix in margin accretive, scalable innovation by successfully addressing consumer trends, including the convenience RTD and betterment categories. We have a strong innovation pipeline planned for the coming year that includes the introduction of Woodbridge wine seltzer, the expansion of Svedka RTDs after a successful first year launch, and New Prisoner family innovation that includes the launch of the Prisoner Pinot Noir, Saldo Red Blend and Unshackled Sauvignon Blanc. We also plan to benefit in year two. From this past year successful innovation launches of Meiomi Cab, Kim Crawford Illuminate and the Prisoner Chardonnay and Cabernet Sauvignon. Our Wine and Spirits brand continued to outpace the ecommerce category fueled by our outstanding performance in Instacart, Drizly and Amazon, and our wine DTC growth continues to outpace the market by close to 2x. In fact, Svedka has become the number one mainstream vodka on Amazon, while Kim Crawford Sauvignon Blanc and Meiomi Pinot Noir claim number one positions in their respective categories on Drizly, one of the largest online marketplaces for beverage alcohol. The early investments we made in this space has given us a key first mover advantage, and will continue to invest in DTC and ecommerce initiatives as consumers shifts where and how they purchase beverage alcohol. The evolution of our Wine and Spirits strategy includes a critical next step to build category leading dedicated fine wines and craft spirits business which will strengthen our portfolio and capabilities in this space to meaningfully inflect our business towards the high-end. We believe that dedicating the proper focus and attention to our fine wine and craft spirits business will complement our leadership in our mainstream and premium businesses and will accelerate our goal to drive incremental profitable sales growth. As we pursue industry leading growth for our Wine and Spirits portfolio, we are constantly assessing our route to market strategies to ensure we stay ahead of consumer trends and maximize our growth opportunities. Our distributor partners play a significant role in achieving our goals and creating value for the market. To that end, we recently announced the evolution of our Wine and Spirits wholesale structure, whereby Southern Glazer's Wine and Spirits assume distribution responsibilities across approximately 70% of our U.S. Wine and Spirits brand portfolio effective April 1. Southern is a proven brand builder, with advanced capabilities in growing consumer segments, including digital commerce, fine wine and craft spirits and ready to drink. And they have category leading sales capabilities across on and off premise channels. We plan to leverage their strengths in these areas to help accelerate our category leadership. We are confident they are the best partner to help us achieve our strategic ambitions and we believe this move best positions us for long-term success and accelerated growth. Moving on briefly to Canopy growth. Over the past year Canopy has made significant progress in strengthening their position in core markets and taking steps to prepare for the inevitable legalization of Cannabis in the U.S. Canopy successful rollout of Cannabis beverages as well as other [indiscernible] 2.0 products has helped the company gain momentum. Currently, Canopy has the top three beverages in the Canadian recreational market and they recently introduced their popular Quatreau CBD beverages in the U.S. Over the coming year, we look forward to benefiting from Canopy's continued March toward profitability, the rollout of Canopy branded products in the U.S. through Canopy's arrangement with acreage and the improving legal landscape for cannabis in the U.S. In closing, let me reiterate how proud I am of the performance delivered by our Constellation team, along with our distributor and retail partners during a tumultuous year. Because of their grip, passion and determination, we're operating from a position of strength as we head into the new fiscal year and we're poised to deliver a solid year of performance again, in fiscal '22. We will continue to invest aggressively to accelerate growth for our strong portfolio of industry leading brands. We have exciting innovation in-store for the coming year. And we're building capabilities in emerging channels, such as three-tier ecommerce, while adding production capacity to fuel our growth over the long-term. Make no mistake, we have bold ambitions for the future and look forward to delivering on our long-term vision, which includes generating industry leading returns for our shareholders over that timeframe. And with that, I would like now to turn the call over to Garth, who will review our financial results for fiscal '21 and our financial focus for fiscal '22. Garth Hankinson: Thank you, Bill, and hello, everyone. Despite a volatile environment and various headwinds experienced throughout the year due to COVID-19, fiscal '21 marked another great year for Constellation brands demonstrated by a robust financial results and solid business performance with pretty strong beer operating performance and cash flow results, with our Wine and Spirits premiumization strategy continues to gain momentum and is well positioned to execute growth now that the Gallo transaction is finally closed. Specifically, in fiscal '21, we achieved strong EPS growth and delivered comparable basis EPS excluding Canopy growth of $10.44. In addition, we generated record operating cash flow and free cash flow of 2.8 billion and 1.9 billion respectively, which enables significant debt reduction of $1.7 billion and reduction of our net leverage, excluding Canopy equity earnings as we ended the year at 3.1x. And lastly, we returned 575 million of cash to shareholders in dividends. Now let's review full year fiscal '21 performance in more detail, where I'll generally focus on comparable basis financial results. Starting with beer, net sales increased 8% on shipment volume growth of approximately 7%. Excluding the impact of the Ballast Point divesture, organic net sales increased 10% driven by organic shipment volume growth of 8% in favorable price and mix. Our full year organic net sales slightly outperformed our previously communicated expectations primarily due to incremental shipments made during the fourth quarter in order to return to normal levels of distributor inventory at fiscal year end. Depletion volume growth for the year came in above 7% driven by the continued strength of the Modelo and Corona brand families. As throughout the year, strong performance continued in the off premise channel and more than offset the impact of the 51% year-over-year reduction in the on-premise channel due to COVID-19. When adjusting for one less selling date in the year, the beer business generated 7.5% depletion volume growth. Moving on to beer margins, beer operating margin increased 110 basis points versus prior year to 41.1%. Benefits from marketing and SG&A as a percent of net sales, pricing, the Ballast Point investiture and foreign currency more than offset unfavorable operational and logistic costs and mix. The increase in operational costs was driven primarily by higher material costs and brewery compensation and benefits. While, the increased logistics costs predominantly resulted from strategic actions taken to expedite beer shipments in order to accelerate inventory replenishment across the network. These headwinds were partially offset by favorable fixed cost absorption related to increased production in fiscal '21. While, marketing as a percent of net sales decreased 30 points to 9.7 versus prior year, this result landed above our previous guidance in the 9% to 9.5% range driven by incremental strategic investments made during the fourth quarter to provide continued momentum as we head into fiscal '22 and the spring selling season. Moving to Wine and Spirits, net sales declined 7% and shipment volume down 16%, while our retained portfolio for the year achieved net sales growth of 5% driven by double-digit volume growth and robust mixed benefits from Meiomi, Kim Crawford, the Prisoner brand family, as well as pricing benefits from Woodbridge and Svedka. Full year net sales results outperformed our previous expectations, primarily due to stronger mixed benefits and some incremental shipments of our retail brands in the fourth quarter. Depletion volume declined approximately 3% mainly driven by the brand's that recently divested, while depletion volume for our retained portfolio declined approximately 1%. The slight decline in our retained portfolio depletion volume was largely driven by strong fiscal '20 Woodbridge volume buy-in ahead of the price increases that went into effect on March 1, 2020 as well as their strategic efforts made throughout the year to right size inventory on hand at several chain retailers in key states. While, this resulted in negative impact of depletion trends for the fiscal year, this will allow for better inventory management going forward. Moving on to Wine and Spirits margins, operating margin decreased 150 basis points to 24.5%, has benefits from price and mix are more than offset by higher COGS, Wine and Spirits divestitures and increased marketing and SG&A spend. Higher COGS was mostly driven by unfavorable fixed cost absorption of approximately $29 million resulting from decreased production levels as the result of the wildfires. Now let's proceed with the rest of the P&L. Corporate expenses came in slightly better than our previous guidance, finishing at approximately $229 million, up 2% versus last fiscal year. The increase was primarily driven by higher compensation and benefits, unfavorable foreign currency losses and an increase in charitable contributions, primarily driven by COVID-19 support, all of which were partially offset by a decrease in insurance related costs and T&E spend. Couple of the basis interest expense for the year decreased 10% by approximately -- to approximately $386 million, primarily due to lower average borrowings as we continue to decrease our leverage ratio. Our comparable basis effective tax rate excluding Canopy equity earnings impact came in at 18.2% versus 16.1% last year, primarily driven by a lower level of stock-based compensation benefit and higher effective tax rates on our foreign businesses. Stock-based compensation benefits came in slightly better than expected during Q4, in addition, we realized some small miscellaneous benefits. As a result, this drove tax break favorability versus our previous guidance. Moving to Canopy, in fiscal '21, we recognized an $802 million increase in the fair value of our Canopy investments, of which $270 million was recognized in Q4. These were excluded from comparable basis results. The total pre tax net gain, recognized since our initial Canopy investment in November of 2017 is $1.1 billion, which increased significantly during the fiscal year driven by Canopy's robust share price movement. Now let's briefly review Q4 results. Beer net sales increased 16% primarily due to shipment volume growth of nearly 16%. Excluding the impact of the Ballast Point divestiture organic net sales increased 18% driven by organic shipment volume growth of approximately 17% and favorable mix. Depletion volume growth for the quarter came in above 6%, however, when adjusting for one less selling day in the quarter, the beer business generated 7.5% depletion volume growth, which is in line with full year trends and our medium-term growth algorithm. As you're all aware, inclement weather affected the South, predominantly Texas during the last few weeks of February. These abnormal and severe conditions did have a slight impact to our Q4 depletion trends as we're estimating that we lost approximately 50 to 100 basis points of depletion volume growth in the quarter. As previously guided, shipment volume continued to significantly outpace depletion volume during the quarter and as mentioned earlier, this resulted in distributor inventories returning to more normal levels at fiscal year end. As expected, beer operating margin decreased 250 basis points to 36.8% as higher marketing spend and increased COGS were partially offset by benefits from favorable SG&A as a percent of net sales, the Ballast Point divesture and foreign currency. Marketing as a percent of net sales was 12.5% or 380 basis points higher than Q4 last year, driven by the shift to spend from the first half to the second half of the fiscal year and incremental marketing investments. Wine and Spirits net sales were down 19% for the quarter, while shipping volume was down approximately 33% reflecting the brands divested during the quarter. Our retained portfolio net sales were up 7% driven by strong shipment mix benefits as discussed earlier. Operating margin decreased 900 basis points to 19.9% primarily reflecting the negative impact of the wildfires on COGS, increased marketing and SG&A spent. In Wine and Spirits divestitures partially offset by benefits from favorable mix. Keep in mind that for approximately two-thirds of the quarter, we had a smaller business posted investitures that was burdened by the full impact of stranded costs on that smaller business. During the quarter, we also recognized a net loss of approximately 46 million in connection with smoke damage sustained during the wildfires, which was excluded from our comparable basis results. Moving to fiscal '21 free cash flow, which we defined as net cash provided by operating activities less CapEx. We generated a record 1.9 billion of free cash flow, which reflects strong operating cash flow. CapEx totaled 865 million and was in line with our most recent guidance. This included approximately 700 million of CapEx for our Mexico beer operations expansion primarily to support the Obregon 5 million hectoliter expansions. Moving to our full year fiscal '22 P&L and cash flow targets. For fiscal '22, we expect comparable basis diluted EPS to be in the range of $9.95 to $10.25, which excludes Canopy equity earnings impact. For our beer business in fiscal '22, we are targeting net sales growth of 7% to 9%, which includes one to two points of pricing within our Mexican product portfolio and operating income growth of 3% to 5%. This implies operating margin migrating to the low to middle end of our range of 39% to 40% driven by several costs headwinds we expect to encounter in fiscal '22 due to the following. First, we are estimating a significant step up in depreciation expense, driven primarily by the incremental 5 million hectoliters at Obregon that was recently completed. For fiscal '22, we are targeting total beer segment depreciation expense to approximate $260 million or an increase of approximately $65 million. Second, similar to previous years, we're expecting substantial inflation headwinds in the low to mid single digit increase range, largely related to glass and other packaging materials, raw materials, transportation and labor costs in Mexico. Third, as the growth of hard seltzers and alternative beverage alcohol categories continue to rapidly expand, we expect to continue to experience unfavorable mix impacts as their margins are diluted from a gross profit perspective, due to the incremental packaging costs and flavor additives. Furthermore, we also anticipate a negative mix impact driven by incremental keg volume versus prior year driven by the continued reopening and return of business to the on-premise channel. And lastly, we expect margin headwinds related to the brewery expansion costs which include increased headcount and training expenses. To help partially offset these headwinds, we expect to execute against our aggressive cost savings agenda. And as stated earlier, expect pricing benefits in the 1% to 2% range. As a result of staggering our fiscal '21 fall price increases throughout the back half of fiscal '21 and in some instances into fiscal '22, we expect to shift more pricing from the fall to the spring in fiscal '22. Lastly, as it relates to beer marketing spend from fiscal '22, we expect marketing as a percent of net sales to be in the 9% to 10% range, keep in mind that marketing spent during the first half of fiscal '21 was significantly muted resulting from COVID-19 related sporting and sponsorship event cancellations and or postponements. For fiscal '22, we expect to return to our typical spending cadence, which is weighted more heavily towards the first half of the fiscal year. Moving to Wine and Spirits, for fiscal '22, the Wine and Spirits business is targeting net sales and operating income to decline 22% to 24% and 23% to 25% respectively. This implies operating margins to approximate 24%, which is flattish to prior year on a reported basis, which shows significant margin expansion on an organic basis. Excluding the impact of the Wine and Spirits divestitures, organic net sales is expected to grow in the 2% to 4% range. The transformation of our Wine and Spirits business is underway and over the next few fiscal years, we're committed to removing stranded costs and executing against other cost savings, mix and price and efficiency improvements and we expect to continue to achieve margin expansion as we migrate to operating margins of approximately 30%. Other fiscal '22 guidance assumptions include interest expense in the range of $350 million to $360 million, corporate expenses to approximately $235 million, comparable tax rate, excluding Canopy equity and earnings of approximately 19%. Non-controlling interest is expected to be approximately $40 million and weighted average diluted shares outstanding are targeted at approximately $196 million, this assumes no share repurchases for fiscal '22. We expect fiscal '22 free cash flow to be in the range of 1.4 billion to $1.5 billion, which reflects operating cash flow in the range of 2.4 billion to $2.6 billion in CapEx of $1 billion to $1.1 billion, which includes approximately $900 million target for Mexico beer operation expansions. I think this is a good spot to elaborate on our capital expansion initiatives for our beer business that Bill touched on earlier. As Bill outlined, our beer business continues to significantly outperform the U.S. beer industry driven by robust consumer demand, as such it is essential that we invest appropriately in order to support this growth for our core beer portfolio, as well as the emerging ABA or alternative beverage alcohol space. These investments include a 5 million hectoliter expansion at Nava dedicated to ABAs, including hard seltzer that is expected to be completed in early fiscal '23. And we are in the process of expanding Obregon to 19 million hectoliters to be completed by the end of fiscal '25. As a result, you should expect our annual CapEx spend for the beer business to be in the 700 million to 900 million range to support this 15 million hectoliter capacity expansion during fiscal year '23 to fiscal year '25. These projects are expected to generate solid returns as our beer business has a high operating ROIC and a best-in-class margin profile, despite the incremental depreciation expected from our CapEx investments. Even with the capital expenditures associated with these initiatives, our strong projected earnings and operating cash flow growth allow us to remain focused on operating below our targeted leverage range, which provides us with the flexibility to execute our $5 billion cash return commitment over the next two years. Our brewery operations in Nava and Obregon have long been part of the fabric of these communities. As part of our expansion efforts and commitment to making a positive impact on the communities where we operate, we will continue working with local authorities and community based organizations on sustainability initiatives that benefit local residents. For instance, over the past several years, Constellation has helped support local infrastructure investments in Obregon that have enhanced water efficiency in the region, more than offsetting our water use at this facility. This is in addition to other benefits we provide including local job creation and fueling economic development. We are working with local partners in Nava on similar initiatives. Lastly, given the current state of activities in Mexicali, we will be unable to use or repurpose this site for future use. Therefore, we expect to take an impairment of approximately $650 million to $680 million in Q1 of fiscal '22, which will be excluded from comparable basis results. However, as Bill mentioned, we actively continue to work with government officials in Mexico to pursue various forms of recovery for the costs we have incurred in constructing the brewery and determine next steps in Mexicali. In closing, I want to reiterate our expectation to continue to have significant capital allocation flexibility as we head into fiscal '22, which will enable ongoing progress in returning cash to shareholders, while making strategic investments to support long-term growth initiatives. Fiscal '21 was a challenging year, yet one that provided key learnings resulting from operating in a volatile environment due to the pandemic. First and foremost, the growth and margin profile of our high end beer business is best-in-class and we expect it to remain as such well into the future. In order to maintain this momentum, we are committed to an exciting innovation agenda, which includes capitalizing on the robust growth in the ABA space while continuing to support the strong growth momentum of our core beer business. This requires us to expand and optimize our production footprint, which not only sets us up for long-term growth, but provides us with contingent capacity to operate sensibly utilization rates will providing us with much needed flexibility. We believe this is the right strategy in order to support our beer business that continues to outperform the market driven by robust consumer demand and we are absolutely committed to satisfying these demands. With that Bill and I are happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Lauren Lieberman with Barclays. Your line is open. Check to see if you are on mute Lauren, your line is open. I don't think we have her here. Our next question comes from the line of Dara Mohsenian with Morgan Stanley. Dara Mohsenian: So on the beer demand side, I guess short-term, we've now cycled COVID. Maybe you could just give us an update on March depletion trends and what you're seeing in April so far? And then longer term, can you touch on the growth opportunity from here on Modelo Especial, it seems to be defined the growth slowdown that happens to a lot of other brands as they get much larger. So it would just be helpful to take a look forward at the key drivers from here in terms of incremental distribution, expansion, innovation, contribution, demographics, et cetera, some of the key drivers that happened in fiscal '21 and your thought process going forward in terms of the growth drivers with that brand? Thanks. William Newlands: Absolutely. We're very pleased to say that March has gotten off to an excellent start. And March was certainly ahead of what our trend line was coming in. So we're very pleased with the start of the New Year, April, obviously, it's a little early to judge. Relative to Modelo, there's really no end in sight for its double digit growth profile. It continues to grow with the Hispanic community and obviously, it is a nice tailwind because of the growth in the Hispanic community. But we still have great distribution opportunities. We continue to grow our velocities on that brand. And when you think about the penetration increasing in the non-Hispanic community 25% over the last couple of years, we're barely scratching the surface. As you probably know, we really only started to advertise outside the Hispanic community over the last few years. So the upside within that community we think is tremendous. And as you also know, we nearly never done any innovation in that other than watching the Chelada line, which of course is quickly become the number one Chelada. We think there's just a tremendous opportunity for Modelo to continue to grow for a long time to come. It's only number three at this point. There's plenty of room still to go up. Operator: Our next question comes from the line of Kaumil Gajrawala with Credit Suisse. Kaumil Gajrawala: If I may just ask about buybacks and you reiterated your $5 billion commitment, but it wasn't included in the release, I guess in terms of what buybacks are going to be for fiscal '22. Can you just talk about how you're thinking about that? Garth Hankinson: Sure. Thanks, Kaumil. We are absolutely committed to meeting our $5 billion commitment over the course of the next two years. And as you know, that includes a significant amount of share repurchases $2.5 billion worth of share repurchases. As we entered this year, we said we were going to have two real commitments as it relates to capital allocation, one was paying down debt and then second was making significant progress on that return of capital. Throughout the year, as we noted, we did pay down debt quite a bit. We started the year at about 3.92x and we've ended at about 3.1x. And, we paid down the -- the Gallo transaction closed in early January, we didn't pay down the last tranche of debt, the $5 million redemption in early February. And at that point, we had some things that we were doing that we had to clear up most notably, finalizing our analysis on Mexicali, and then the subsequent, further investment in capacity. So that's why we didn't make any progress in fiscal '21. But we fully expect to make meaningful progress this year. Operator: Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I guess I had a question on your guidance. I understand the headwinds you guys called out that are going to pressure your operating income this year, but I guess I'm trying to think through some of the levers you might have to offset these pressures, beer pricing for one comes to mind, as you called out, your pricing was softer last year, it was under 1% for the fiscal year, which is below your typical 1% to 2% range. So how should we think about your willingness to take more pricing this fiscal year to offset some of these incremental cost pressures? Would you be willing to go above your typical range? And then, finally, how much visibility do you have with some of the commodity and transportation headwinds that you're facing? Curious, are you fully hedged, for instance, on some of these commodities? William Newlands: Sure. Bonnie, I will take the first half of that. We believe the 1% to 2% pricing actions that we take pretty much on an annual basis is the smart way to approach it, it balances the opportunity to get improved revenue scenarios with the recognition that, you do have some price sensitivity within certain consumer groups that consume our brands. So you always walk that delicate balance of where you go. And our view is 1% to 2% is a good amount that allows us to continue to maintain the strong momentum within our business that we have. As you know, we continue also to aggressively increase our spend overall against our marketing platforms. And that will only be expanded when you think about some of the innovation agenda. So we're very optimistic about the whole platform. But we're getting much beyond that, I think in any one year, it is probably not the best way to approach that question. And Garth, you might answer her second please. Garth Hankinson: Sure. Just on the opportunities on the hedging, Bonnie, so first of all, every year, our ops teams and our production teams are looking for ways to take costs out of the business, still continue to look for those as we go through the year. So those are possible levers as we move forward. But quite candidly, those cost savings get harder and harder as time goes on. As it relates to our hedging position. As you know, we have a fairly robust and sophisticated hedging policy that allows us to layer in hedges on both commodities and on currencies over the course of many years to take advantage of favorable rates. So we've done that in order to mitigate what otherwise may have been higher inflation this year. That being said, we're not fully hedged in any one thing, whether that's currency or commodities. And so to the extent that there are any improvements as rates, we could benefit from those as well. Operator: Our next question comes from the line of Bryan Spillane with Bank of America. Bryan Spillane: My question for you just related to Mexicali and I guess, just trying to think through, of the -- I guess roughly $800 million that we've spent there, in terms of just cash back -- what are the sort of opportunities to maybe recapture some of that cash, whether it's repurposing the equipment, the land – maybe selling land? Also, will there be any cash tax benefit? You basically wrote that off as a loss and then there's a cash tax benefit, just trying to understand how much of that cash we could think about you recouping over the next year or two? William Newlands: So obviously, Bryan, we continue to work to mitigate that impairment, but obviously we felt it was time to take that impairment. We have repurposed a number of the equipment things that we have there into other facilities as part of our expansion of the other facilities. And we're going to -- we're continuing discussions with the government as well, relative to mitigating the impairment for the future as well. But I do think it's important to note one thing, though, we're not going to let this setback and admittedly, we're not happy about it. We're not going to let this get in the way of focusing on our growth and meeting the growth and high demand that we have for our brands over the long-term. The reason where we're doing the capacity expansion that Garth talked about previously, is because our demand continues to be aggressive, A, on our core business, and B, we're going to get after the ABA/seltzer space, in an even more aggressive way than we have up to this point. So we're not going to let this get in the way of us meeting consumer demand for our brands in the future. Garth, do you want to comment on that one? Garth Hankinson: Yes. Just as it relates to further recovery. So first of all, the impairment kind of is net of what we think we've recovered to-date, right. So we have been moving equipment out of Mexicali and over to Obregon, in support of the 5 million hectoliters that just went live. We continue to do that to support further expansion at Obregon. And really taking the impairment is -- and making the decision to move on is the first step in further evaluating what our next options are, which, as you indicated, could include things like selling the land and whatnot. And then, just further as it relates to any the negotiation of the conversations, I should say that the Bill referenced, we do expect that there will be some additional recovery in that --recovery could come in many different forms, it could come in cash payments, it could come in tax credits, it could come in infrastructure credits, things of that nature. So, we're certainly not done, as it relates to trying to recover any lost costs. Operator: Our next question comes from the line of Vivien Azer with Cowen. Vivien Azer: My question is on your margins, understanding that there some very clear structural headwinds that you're contending with and even to offset with cost savings. I am a little bit surprised that your E&P guidance is not a little bit higher, given the substantial amount of new product activity. So I was hoping you could just elaborate on kind of what informed the range in order of magnitude how you're thinking about prioritizing that spend. Garth Hankinson: I'm sorry, Vivien, I was trying to understand the question. So I think what I heard you say you're asking the question around what's driving the, or trying to get a sense for that the scale of what's driving the margin dilution. So as we said, about a third of the dilution is driven by the inflation, which we discussed, about a third of that is coming from the increase in depreciation. And then, a third of that is from the mix impact moving towards seltzers and ABAs. William Newlands: Well, advertising is going to be consistent going forward with what our historical trends have been in that sort of mid nine's range. We're obviously in a growth business like ours, that's still a significant increase year-on-year on what the total spend is, because it's coming off a very much higher top-line than it was in the prior year. So we're actually spending a lot more in our marketing spend than we had in prior years. Operator: Our next question comes from the line of Kevin Grundy with Jefferies. Kevin Grundy: I wanted to drill down on your views for the hard seltzer category, if I could. Three part question. So one, has the category slowdown that we're seeing in the Nielsen data in the first quarter? Is that in line with your expectations, obviously, very difficult year-over-year comparisons, but that being said, still moderating. Two, what are you forecasting for the seltzer category this year? What's embedded in your outlook? And then, the last piece is maybe touch on your level of satisfaction with your market share at this point, understandably, you're leaning in now, you talked about the $60 million ad campaign. That being said, as we look at the Nielsen data your market share is hovering in the 3% area. How is that relative to your expectations? Where do you expect that to go here over the next 12 months? William Newlands: Sure, two or three of those things, we'll try to get them all. It's not unexpected in a category that's continuing to bring in new consumers that you have some seasonality effects. We certainly saw greater seasonality effect over this recent period than we saw a year ago as an example. Our view is, that's likely because you have a significant higher percentage of either early or less consistent user. So it wasn't really a surprise, it still remains a growth sector within the beer industry. Our forecast it's going to continue to grow and continue to be a very important part, which is why we're more than doubling our capabilities against hard seltzer for this particular year coming, that we're just starting. We believe this is going to be an important part. And it also provides an interesting entree for people into the overall beer category. Relative to the market share, as you know, as we expanded our capabilities that allowed us to do additional SKUs, we did almost 10 million cases this past year with one SKU, which is kind of an outstanding launch, if you will. But the expansion that we are putting in place is going to allow us to more than double that we've already introduced SKU number two and number two variety pack, and we have Limonada coming online, here this coming June. So our expectations is, you'll see a significant increase in our share proposition, in part because we'll have more available to the consumer. And we'll have more shelf space on the warm shelf and more cold back space in the cold box as well. So we're very optimistic about what our profile will look like as the year goes on. Garth Hankinson: Yes, Kevin, just to follow up on that really quickly, so that the growth that you're seeing so far is, fairly well, in line with what we're expecting. We're expecting growth in the category this year to be in that 40% to 50% range. Operator: Thank you. Our next question comes from the line of Sean King with UBS. Sean King: I guess with your fiscal year ending, since then, seems like the market has opened up quite a bit, I guess, I'd love to know a bit more about what you're seeing in the on-premise. And also within that any change in distributor inventory level, then the more markets reopen? William Newlands: You're starting to see difference and obviously, it varies by state. So for instance, it got a little tighter in California in the early part of this calendar year than we had anticipated, but overall, we're starting to see some increase in the on-premises, you would expect recalling that sort of it's going against the time last year when it was off more than 50%. So we certainly would expect some of that. I think that the open question, it's very difficult to predict, quite frankly, is where the all the whole channel mix ends up going. It's an open question. As you know, we are somewhat less susceptible to the on-premise channel than some of our competitors, because our overall profile is SKUs more to the off-premise anyway. But certainly, we're optimistic and as more of the U.S. population gets vaccinated, we're hopeful that in the summer months, it begins to look a little bit more like what a typical year would be. But it's still a little early to make that call. Operator: Our next question comes from the line of Rob Ottenstein with Evercore. Rob Ottenstein: Just two follow ups, one for each of you. Bill, can you talk a little bit more about Pacifico, on every call, you get progressively more excited about it, which is great. Can you talk maybe, sort of the reasons to believe that it's going to be a major national brand? And then, Garth maybe touch on how you're thinking about the mix between share buybacks and dividends? It seems evident from the release just a 1% dividend increase. Why so little and is that just, the way you're looking at things is that you'd much rather prefer share buybacks particularly at the depressed valuation of the equity. William Newlands: Well, Robert, Patty always warns me about being too giddy, but I must say it's tough not to be giddy when you look at some of the results around Pacifico. Consistently you're seeing four week trends in IRI that are up in the 30 plus percent range. That the core business in Southern California continues to do extremely well and it's developing across the country. Again, we really just are scratching the surface of building out with this brand to be. But my old friend Bill Hackett always said Pacifico, starting to look a lot like Modelo looked about 15 to 20 years ago in terms of the development and how it really started out in the California bases. Modelo is now the number one brand in the state of California. I'm not making a prediction that Pacifico will be the number one brand, but it wouldn't be the worst thing that ever happened. So I certainly -- there's just a lot to be excited about you, you then add in that we're starting to do some innovation and some innovation testing in that brand with Gen Z consumers. This brand very much over indexed with Gen Z consumers. So we're bringing in a somewhat different audience than what we have with some of our other franchises. So, again, it's early days, but there's just so much to be excited about with Pacifico. We really think this could easily be the next big franchise within our overall portfolio. Garth, over to you. Garth Hankinson: Sure. And on the sort of capital allocation question regarding share buybacks and dividends. I mean, look in the construct of everything we're trying to do from a capital allocation standpoint is, we want to make sure that we maintain investment grade, we want to make sure that we return to shareholders what we previously said we would return to shareholders, which was about 2.5 billion of share buybacks and 2.5 billion of dividends. And we want to make sure that we have the flexibility to invest in our business, as we talked about investing significantly in Mexico to support the robust growth of our portfolio. So all of that goes into the mix when we're trying to decide where to spend the money. And as it relates, specifically to dividends, versus share buybacks, we feel pretty good about where we are in terms of our payout ratio right in the target of what we've set for ourselves. So that's why we didn't increase it more. And by keeping it where we are, we're able to do all those other things that I said, return a significant amount of money in share repurchases, invest behind the brand, maintain our investment grade rating. Operator: Our next question comes from the line of Chris Carey with Wells Fargo Securities. Chris Carey: I just wanted to follow up on a couple of the prior answers. I guess, just one, I'm trying to understand what's embedded from an off-premise and on-premise standpoint for next year, it seems like, even if you get half of the on-premise back, you're looking for only low to mid [teen digitally] [ph] off-premise. And if on-premise comes back and full, off-premise basically, implies did not grow next year. And I guess what I'm trying to understand is, is that just a construct of difficult comps, in the off-premise? Or is there something else in play? Because clearly, commentary from the trade seems positive, Nielsen scanner was good even on, COVID comps, you get innovation coming through. So I'm just trying to understand that. And if I could sneak one and just on distributor inventory, you mentioned that inventory seemed back at the levels where you want to but at the same time, the trade would suggest that you're still trying to catch up. Can you just add a little bit more perspective around that? William Newlands: Sure. So let's start with the inventory, our inventory levels came out last year at roughly a normal level. And we expect that it will stay roughly within that range, we have no major change in expectations about changing inventory. Relative to on-premise, remember, today, it's only 6% of our business as it currently stands, because of the significant decrease that's occurred based on COVID. So our expectation is, we're still going to see very robust growth in the off-premise, during this fiscal year. And as you've seen, we're consistent with our long-term growth algorithm that we've seen already stated March is off to an excellent start. So we're very optimistic about that algorithm. But with that said, it's also going to be difficult to exactly predict what will happen with the on-premise, because we've already seen as markets have opened and then closed a little bit and reopened, there's just a lot of variability that's hard to predict. Again, while there is an over expression in the off premise, that isn't the worst thing for us, our business is over skewed into that area. And we continue to expect robust growth within the off-premise channel for this for this fiscal year. Operator: Thank you. Our next question comes from the line of Andrea Teixeira with JPMorgan. Andrea Teixeira: So I wanted to just -- since we've covered a lot of grounds on beer, a bit on Wine and Spirits. What are you seeing with the reopening and also anything in terms of the switch between at home and on-premises, anything about promos and how you're going to position your focus brand? William Newlands: Well, the biggest switching that we've seen is a significant increase in three tier ecommerce. As we said in my prepared remarks, we were quite pleased the fact that we got way ahead of that we were already investing against that capability. And we've accelerated that investment, which really in our view gives us a first mover advantage in this particular area. And you're seeing that change, I'm sure just as a shopper, we've all seen in-store a significant increase of Instacart, click and collect and some of those alternate ways of people buying considering how they used to buy. Direct to consumer is also up, we're pleased that we are performing at more than 2x the growth profile of DTC and we've also invested in that area, you'll recall earlier, last fiscal year, we bought Empathy, in part to radically improve our capabilities in the direct to consumer. And we are now leveraging that across many of our other brands. So we're very excited about those opportunities and that being an increasingly important part of the future of the Wine and Spirits business. Operator: Our next question comes from the line of Steve Powers with DB. Steve Powers: Maybe just to round out and build on the capacity expansion discussion. You start early with Bryn, if I think just out beyond the fiscal '23 to '25 plans at Nava and Obregon. Is it fair to assume that additional expansion would take shape outside those two facilities? Or is there more room to expand those locations? And I guess in terms of those new locations, Bill, I think you mentioned exploration of future sites in the southeastern part of Mexico, which I think is consistent with preferences that have been expressed by the Mexican government. But just can you elaborate on your considerations there because if does play out, you'd be shipping long distances to get to the southern border of the states. And just thinking -- just want to think through how you're thinking about overcoming those dynamics just to preserve overall efficiency? William Newlands: Well, let's put a little bow on the whole scenario about building out our capabilities. One of the things that we've been quite good at over the last several years, is running our plants at hyper efficiency. But I think one thing is learning from the pandemic. And I think any good business should have an element of learning when something hits you in the face and the pandemic certainly did that across many, many, many industries. One of the things we learned is, well, our efficiency was tremendous; we didn't have a lot of flexibility in the event that something didn't go well. And so one of the pieces that we are doing with this expansion is not only to meet the hyper growth that we have within our business, but also to create some increasing flexibility and some redundancy within our business. So that if you have weather challenges, or God forbid, we had another pandemic, but if you had weather challenges, or some other curveballs that occurred, it would have minimal to no impact on our ongoing supply. So that was very important. Relative to the southeast, we are considering that it's critically important to have water supply, it's actually a lot of shipping capabilities to some of the areas that we are looking into. So we're pretty confident that could very well be a future location for a brewery for us. Admittedly, that's a bit out, it takes two to four years to even get that process going and underway. But we're certainly evaluating it because we think it could be a long-term very viable solution for our business. Operator: Our next question comes from the line of Laurent Grandet with Guggenheim. Laurent Grandet: So like to actually follow-up on Kevin's question on the seltzer category. So last year, when you launched Corona seltzer, you said you will spend about [$40 million] [ph] to use the brand. So a year later Corona seltzer is about 2.5% of market share in the last four weeks and SCV is down 60%. So what makes you believe that with two new SKUs, one being launched late in the season just in June, and spending about $50 million, which by the way, we'd be happy share of voice of last year, you will be more successful. And actually what success would look like for you in the fiscal year 2021 in seltzer? William Newlands: Sure. Well, let's keep in mind that 60 million, that'll be the number one share of voice in the seltzer category during the critical season. So, our view is that's a very important and loud efforts against that particular sector. Secondly, again, you got to keep in mind, we produced everything we could possibly produce last year and we sold it. It was probably the most successful introduction the company's ever had with the corona hard seltzer. So we were very pleased with our position. What we did see is there remained a lot of opportunity, it remains a growing sector in the beer business, we only have one SKU expanding our footprint to meet more consumer needs and occasions and flavor profiles was going to be very important. And it also gives us the chance to get expanded reach and velocity at both warm shelf and in the cold call box. So we think having the number one share of voice in this particular category, coupled with our new introductions that are coming this year, we're very excited about what our share profile will look like as the year goes on. Operator: I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Bill Newlands for closing remarks. William Newlands: Thanks very much. And thank you all for joining the call today. I know it was a bit longer than some of them. As a result of our continued robust performance and financial discipline this past year, Constellation Brands achieved strong earnings growth generated record cash flow and significantly reduced our debt providing solid momentum as we head into fiscal 22. Our beer business has an exciting innovation lineup for the coming year and we expect our core portfolio to continue to generate robust growth as well as we've talked earlier today. In order to satisfy this robust consumer demand, we have plans in place to execute our next increment of capacity expansion and we are pleased to be in the position to continue investing in Mexico and enhancing our operational platform. Our Wine and Spirits premiumization strategy gained significant traction during this past fiscal year and the divestiture of several lower end wine brands positions this business for enhanced growth and profitability going forward. We look forward to speaking with all of you again in late June when we will share the results of our first quarter of our new fiscal year. Before then, we hope you'll choose some of our fine products for your spring celebrations, including Cinco Se Mayo and Memorial Day and let us all hope they are a bit more normal. Thanks again and have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.