CONSTELLATION BRANDS, INC. Q3 FY2025 earnings call

• Beer Business: Growth in consumer demand for beer portfolio sequentially expanded in Q3, driving depletion growth. Secured over half of incremental distribution targets for core brands. Innovation contributions from new liquids and pack formats within range. Facing headwinds in high-end light beer and Chelada channels. Delivered net sales and operating income growth, cost savings, and incremental marketing spend. - Wine and Spirits Business: Divested SVEDKA. Craft spirits portfolio had a 9% depletion increase. Facing demand headwinds, focusing on tactical pricing, distributor alignment, and cost savings initiatives.

Beer Business: In the third quarter of fiscal '25, beer depletions grew by 3.2%, net sales grew approximately 3%, and operating income grew approximately 2%. Shipments were up 1.6%. Modelo Especial saw depletions grow by over 3% and was the top share gainer. Corona Extra's dollar share increased despite depletions declining ~1%. Pacifico had very strong depletion growth of nearly 20%. The beer business contributed significantly to total revenue. Wine and Spirits Business: Net sales declined just over 14% in Q3, largely due to a shipment volume decline of over 16%. The fine wine portfolio had a 6% depletion growth, with Meiomi and Kim Crawford seeing over 7% depletion increases. The business faced demand headwinds in the wine category.

• Enterprise: 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. - Beer Business: Adjusted net sales growth to 4% to 7% and operating income growth to 9% to 12%, with an operating margin of approximately 39%. - Wine and Spirits Business: Updated to net sales and operating income declines of 5% to 8% and 17% to 19% respectively.

• Macro-economic headwinds leading to subdued consumer spending and value-seeking behavior. Uncertainty regarding consumers reverting to normalized spending behaviors. Impact of unemployment on key markets and channels. Potential tariff policies affecting the business.

Q: Dara Mohsenian from Morgan Stanley asked about separating short-term consumer weakness from longer-term concerns affecting beer revenue growth.

A: William Newlands stated the near-term moves have been longer than anticipated but not structural, noting alcohols' percentage of consumer basket remains consistent and expecting to come out of the trough.

Q: Kaumil Gajrawala from Jefferies inquired about capital allocation and CapEx deployment.

A: William Newlands and Garth Hankinson discussed agile modular approach to CapEx, ongoing share repurchases with $1.9 billion authorization, and disciplined capital deployment towards returning capital to shareholders.

Q: Bonnie Herzog from Goldman Sachs asked about updated guidance and drivers of range widening.

A: William Newlands explained the range reflects risks and opportunities, mentioning consideration of unemployment and events like California fires.

Q: Lauren Lieberman from Barclays questioned wine and spirits turnaround plan.

A: William Newlands noted it was expected to take 9-12 months, with some positives like Meiomi and Kim Crawford growth, focusing on higher-end brands.

Q: Bryan Spillane from Bank of America asked about beer category health and turnarounds.

A: William Newlands stated Constellation outperformed the category, with Modelo, Pacifico, and non-alcoholic options offering growth opportunities.

Q: Robert Ottenstein from Evercore asked about beer inventories and shelf space gains.

A: William Newlands said inventories are consistent, expecting normal shelf space gains due to outperformance of the category.

Q: Andrea Teixeira from JPMorgan asked about tariff risk and volume guidance.

A: Garth Hankinson discussed wide guidance range acknowledging macro risks and potential tailwinds from positive unemployment prints.

Q: Filippo Falorni from Citi asked about beer margins and opportunities.

A: Garth Hankinson explained beer margins expected in 39%-40% range, considering volume, cost savings, pricing, and inflation impacts.

Q: Robert Moskow from TD Cowen asked about light beer segment price competitiveness and industry pricing.

A: William Newlands stated selective promotion within 1%-2% pricing range, avoiding broad market swings.

Q: Peter Grom from UBS asked about beer guidance and CapEx discretion.

A: William Newlands and Garth Hankinson discussed alignment of shipments and depletions, modular nature of CapEx, and schedule for Veracruz opening