The paragraph introduces the Constellation Brands Q4 Fiscal Year 2025 Earnings Call and outlines the structure of the call. Joseph Suarez, Vice President of Investor Relations, welcomes participants and mentions that he is joined by CEO Bill Newlands and CFO Garth Hankinson. He notes that financial materials were made available on the company's website and addresses questions about future sales and income growth rates, providing expected figures for fiscal years 2026 to 2028. He also references the availability of GAAP and non-GAAP financial measure reconciliations, and advises reviewing the company's SEC filings for potential risks affecting forward-looking statements.

The paragraph discusses a financial update from a company, with Joe handing the call over to Bill Newlands, who provides an overview of the company's performance in Q4 and the full fiscal year '25. The company has achieved growth in net sales and operating margins despite a challenging economic environment with softer consumer demand. They anticipate these demand issues to stabilize and are focused on expanding distribution, innovating, and increasing marketing investments to support their Beer Business, all while maintaining strong operating margins. The call references the impact of US and Canadian tariffs on future fiscal years and requests for questions to be limited to one per person.

The paragraph discusses the expected improvements in the company's Wine and Spirits Business following the 2025 Wine Divestitures Transaction and associated restructuring, with projected cost savings of over $200 million annually by fiscal 2028. It outlines the target to generate approximately $9 billion in operating cash flow and $6 billion in free cash flow from fiscal 2026 to 2028, primarily investing in a new brewery in Veracruz and expansion in Mexico. The company plans to maintain a balanced capital deployment strategy, including a 30% dividend payout ratio and executing share repurchases with a new $4 billion authorization. Following this, the focus shifts to addressing a question from Lauren Lieberman about tariffs, certification under the USMCA, and aluminum can pricing, along with the long-term growth outlook for the beer industry.

The paragraph features a discussion involving Bill Newlands and Garth Hankinson addressing questions about compliance with the USMCA and the impact of tariffs from the U.S. and Canadian governments on their beer and wine businesses. Specifically, the tariffs affect aluminum cans and wine imports from New Zealand and Italy. Bill Newlands acknowledges challenges, particularly with the Hispanic consumer segment, but remains optimistic about a return to normalcy over time. Nik Modi from RBC Capital Markets then questions the long-term outlook for their beer business, suggesting recent guidance cuts seem extreme given the brand momentum and retailer support. He seeks clarification on the expected growth rate adjustments and whether they're assuming a continuation of current conditions.

The paragraph discusses the importance of brand health for the company, with Bill Newlands highlighting strong metrics in the medium term, thanks to control over distribution, focused innovation, and execution. The company gained over 10% in market share last year, though acknowledges uncertainties, especially regarding socioeconomic issues affecting Hispanic consumers. Despite these factors, the Hispanic consumer remains loyal to the brands, which is promising for long-term market share growth. Garth Hankinson adds that there have been significant increases in aided awareness and consideration for brands like Modelo, Corona, and Pacifico, aligning with recent media investments.

The paragraph discusses the stability and popularity of various beer brands across different demographics, with a notable increase for Pacifico in California. Bonnie Herzog from Goldman Sachs asks about expectations for beer category growth and margins amid anticipated declines and tariff risks. Bill Newlands responds, stating that the beer industry is expected to remain flat or decline by up to 2% in the medium term. However, he highlights that their company has historically outperformed the industry and expects to continue gaining market share. The timing of this recovery is largely dependent on consumer sentiment.

In the paragraph, Garth Hankinson discusses the company's approach to maintaining strong profit margins, noting the use of modular management to limit depreciation and overhead issues, expected incremental volume growth, a consistent 1% to 2% pricing strategy, and ongoing cost-saving initiatives. While acknowledging that inflation and tariffs might offset these positive factors, Hankinson remains confident in achieving margins of 39% to 40%. Rob Ottenstein from Evercore ISI then asks about the company's plans for deploying free cash flow, considering changes in the Wine and Spirits Business and reduced growth expectations for the beer segment. He inquires about the possibility of larger acquisitions, the commitment to share buybacks, and overall priorities for cash flow deployment. Hankinson appreciates the question but does not provide a detailed answer in the given text.

The paragraph discusses the company's financial strategies and priorities through fiscal year 2028. They plan to generate $9 billion in operating cash flow and $6 billion in free cash flow while maintaining their capital allocation priorities and achieving three times leverage. The company is committed to returning capital to shareholders through dividends, maintaining a 30% dividend payout, and executing a new $4 billion share repurchase authorization, reflecting their view that their shares are undervalued. They aim to continue investing $2 billion in their Beer Business and prioritize mergers and acquisitions only for smaller opportunities. Afterward, the operator introduces a question from Chris Carey of Wells Fargo Securities regarding gross margins for fiscal 2026.

The paragraph consists of a question-and-answer exchange during a discussion about the impact of tariffs and currency fluctuations on a business model for fiscal year 2026, and considerations for future fiscal years. The questioner, Chris, is seeking to understand the specific effects of tariffs on aluminum cans and the potential impact of a favorable currency situation in FY '26 that may not persist in the following years. Garth Hankinson responds by confirming that the guidance has accounted for the tariffs and describes the company's approach to managing currency risks, including hedging strategies that aim to minimize year-to-year impacts. The conversation then transitions to another speaker, Nadine Sarwat from Bernstein, who asks about assumptions regarding the socioeconomic environment over the next three years.

The paragraph discusses the impact of economic and social concerns on the Hispanic consumer, who comprises roughly half of the beer market for the company, particularly affecting Modelo beer. It highlights how worries about rising prices, immigration issues, and potential job losses have led to reduced spending among Hispanic consumers across several categories, notably in dining out. Although beer consumption is less affected compared to other categories, it is still impacted due to decreased social gatherings and restaurant visits, which are common occasions for beer consumption. This has, in turn, negatively influenced the company's beer business.

The paragraph discusses the outlook and current challenges faced by a company, focusing on brand performance and economic conditions. The company remains confident in its brand's strength and continues to focus on innovation and effective execution to outperform its category. However, they acknowledge the need for improvements in consumer brand health to better predict the duration of ongoing challenges. Garth Hankinson adds that the company does not expect significant macroeconomic improvements during the forecast period, noting stable unemployment but weaknesses in specific job sectors affecting beer consumption, low real disposable income, and consumer sentiment, as well as slower-than-expected inflation rebound and muted GDP growth outlook. Potential modest improvements might occur by 2025 or 2026, but not within the current forecast period.

In the paragraph, Peter Grom asks about near-term expectations for beer top line growth, emphasizing the challenging exit rate and seeking guidance on price versus volume for the first quarter. Bill Newlands responds, saying that the strongest quarter last year was fiscal Q1, although they typically don’t provide quarterly guidance. He notes that both the industry and their business started to soften in the back half of the previous year, with potential volatility ahead due to socioeconomic issues. However, he highlights their strong brand health, which he believes will benefit them long-term. Subsequently, Bill Kirk inquires about efforts by groups like the Teamsters and major brewers to differentiate between American and imported beers and their influence on alcohol tariff policies. Bill Newlands finds the question interesting but difficult to answer.

The company expresses pride in its 80-year history as an American-owned company, despite producing most of its beer in Mexico due to its Mexican heritage brands. It emphasizes spending approximately $1 billion annually in the U.S. market and sourcing ingredients domestically. The company claims to support the Teamsters and create more U.S. jobs than competitors, attributing job growth to its distributor network and business expansion in Mexico. In response to a question about future risks and potential areas of conservatism in their outlook, Bill Newlands identifies consumer sentiment as the primary risk, noting that improved consumer confidence would benefit their business and the industry as a whole.

The paragraph discusses the impact and timeline of financial changes within a wine business. Gerald Pascarelli from Needham & Company asks about a $41 million impact on operating income, inquiring if it will affect the first quarter of 2026. Garth Hankinson responds that the $41 million impact will happen gradually throughout the year, not in one specific quarter. Additionally, he explains that $100 million in cost savings is expected, with $55 million anticipated in fiscal year 2026 for Wine and Spirits, indicating most actions to achieve these savings will take place in that fiscal year.

In this paragraph, Dara Mohsenian from Morgan Stanley questions the company about their significant revision of long-term beer sales growth predictions from a 7-9% range to 2-4% for fiscal years '27 and '28. She asks for clarification on how much of this change is due to external macroeconomic conditions, persistent industry challenges like health and wellness trends and demographics, and opportunities for market share growth for the company. She notes the apparent contradiction in the company's focus on short-term factors affecting beer depletion rates and the substantial long-term sales growth adjustments. Bill Newlands responds by acknowledging the impact of current consumer sentiment, which is difficult to predict in terms of duration, as a potential significant factor for the current fiscal year. He emphasizes that the issue is short-term and not related to brand health.

In the paragraph, Bill Newlands discusses the growth of the Pacifico brand, likening its trajectory to that of Modelo from a decade ago, and emphasizes the strength of their brand portfolio. He notes their focus on innovation and expanding consumer reach while acknowledging the challenges of projecting socioeconomic impacts. In response to a question from Kaumil Gajrawala about potential structural changes affecting growth expectations, Newlands asserts that they still have significant growth opportunities, particularly in expanding their reach within the non-Hispanic community, supported by recent increases in marketing spend.

The speaker, Andrea Teixeira from JPMorgan, asks Bill and Garth about their company's recent performance and strategy, particularly in relation to beer volumes in Hispanic ZIP codes compared to the general public. She refers to past experiences with Group Modelo and how this has influenced their decisions. Andrea also questions their investment in advertising and promotions, noting their substantial spending, and inquires how they plan to adjust their strategy as they focus more on the general public. Bill Newlands responds, indicating that he will address these questions in an orderly manner.

This paragraph discusses shifts in Hispanic consumer behavior, with a move from primarily Hispanic-focused stores to larger chain-based accounts. Despite these shifts, the company is committed to increasing its business investment, particularly in marketing its Beer Business. They anticipate spending $200 million over the next 2.5 fiscal years, confident in their strong cost agenda. The company regularly reviews its marketing strategies, aiming for efficiency and high returns, and prioritizes maintaining a leading share of voice for its brands, Modelo and Corona.

The paragraph addresses concerns about the potential decline of Corona Extra, comparing it to Bud Light in 2008. Bill Newlands emphasizes that Corona remains a strong brand with significant consumer awareness and loyalty. He highlights the success of Corona Familiar and the introduction of Corona Sunbrew to reach new consumers. Newlands states that Corona has a strong return on advertising investments, and they are increasing their marketing spend this fiscal year. Overall, he remains optimistic about Corona's future and expects it to continue being a vital part of their brand portfolio.

In the paragraph, Filippo Falorni from Citi asks about the beer margin expectations, given the challenges of cost inflation, depreciation, and a softer volume environment. Garth Hankinson responds by explaining that volume increases, pricing adjustments, cost-saving initiatives, and depreciation management will help maintain operating margins at 39% to 40%. Bryan Spillane from Bank of America then appreciates the management's effort to provide a clear forecast in a challenging environment, acknowledging the difficulty in making long-term predictions.

The paragraph discusses a $200 million annualized savings plan, with $100 million stemming from the divestiture of parts of the wine business and the rest from corporate functions and beer. Garth Hankinson explains that the goal is to have a capable organization with the best resources to meet strategic priorities. The company has a strong history of cost management and will look for additional efficiency opportunities beyond the initial savings. Bill Newlands adds that their effective supply chain capabilities allow them to reinvest savings into growing the business, a strategy they intend to continue.

The paragraph is a conversation during an earnings call where Steve Powers from Deutsche Bank asks Bill Newlands and Garth questions about their business strategy. Bill explains that the company's strategy for their Wine and Spirits Business mirrors their approach to beer by focusing on premium segments. He mentions that they have reshaped their portfolio to align with the premiumization trend in the alcohol beverage industry. As evidence of success, Bill notes that their retained Wine and Spirits Business grew by 4% in depletions in the previous year's fourth quarter, indicating confidence in a more focused, high-end portfolio. Meanwhile, Garth is asked about how the revised outlook on beer affects their expansion plans in Veracruz and other facilities.

The paragraph discusses the strategic focus of a business within the wine sector, highlighting that they plan to concentrate their efforts on a particular subsegment that has shown stronger performance than others. Garth Hankinson mentions that they will manage their resources responsibly, aligning with their volume expectations, and are reducing capacity expectations through FY '28. The Veracruz brewery is on track to open and will be significant for their portfolio. During a Q&A, Kevin Grundy from BNP Paribas questions the investment levels in the Beer Business, pointing out that current levels are below those of previous years. He inquires whether there was consideration to increase investments to boost top-line growth, despite potential impacts on margins, acknowledging the industry's environmental volatility.

The paragraph discusses Constellation's approach to marketing investment and its financial strategy. Garth Hankinson explains that although the company's marketing spend as a percentage of sales will be slightly lower in FY '26 compared to FY '25, they are committed to providing what marketing teams need to drive performance. The company focuses on cost savings and reinvesting in high-return opportunities, which allows for significant marketing investments when needed, as seen in the previous year's Q3 and Q4. Despite a reduced percentage, Constellation has improved efficiency in media buying and marketing management. Bill Newlands reiterates that there is no fundamental change in the company's strategic approach.

In the paragraph, a company representative highlights that they have been the leading Circana large company CPG in terms of growth for six out of the last eight years, including the previous calendar year, despite industry challenges. They aim to continue this growth while maintaining a strong profit margin of 39% to 40%. Robert Moskow from TD Cowen questions the impact of aluminum can tariffs on costs, noting a 25% tariff, but Garth Hankinson encourages looking at the company's guidance to understand the overall impact, which also considers productivity, cost savings, and inflationary pressures, all factored into the margin assumptions.

In the paragraph, Michael Lavery inquires about the company's approach to brewery capacity and logistics, particularly concerning the Veracruz location. Garth Hankinson responds by explaining that when evaluating their brewery footprint, several factors are considered, including the size, capabilities, and specialization of the breweries, as well as optimizing logistics costs. Although Veracruz represents a small portion of their total production (3 million out of 55 million hectoliters), the company is working on making logistics cost-effective and plans to focus Veracruz on high-volume production lines to minimize costs and offset any additional logistics expenses. The conversation concludes with the operator ending the question-and-answer session.

The teleconference and webcast have concluded, and participants are encouraged to disconnect. The speaker thanks everyone for their participation and wishes them a good day.

This summary was generated with AI and may contain some inaccuracies.