Constellation Brands at dbAccess Conference: Strategic Moves Amid Challenges

On Tuesday, 03 June 2025, Constellation Brands (NYSE:STZ) shared its strategic insights at the 2025 dbAccess Global Consumer Conference. The company addressed both challenges and opportunities, emphasizing its resilience amid inflation and shifting consumer behaviors. While noting concerns such as reduced restaurant visits by Hispanic consumers, Constellation Brands highlighted strong brand loyalty and innovative strategies to drive future growth.

Key Takeaways

• Constellation Brands sees current headwinds as temporary, focusing on brand strength and consumer loyalty.
• The company is optimizing SKU efficiency and adjusting product sizes to meet diverse consumer needs.
• A restructuring program aims to achieve over $200 million in savings by fiscal year 2028.
• Constellation Brands targets maintaining a 39% to 40% beer margin and expects significant cost savings.
• The company is pursuing strategic M&A and capital allocation to enhance shareholder value.

Financial Results

• The beer segment aims for a 39% to 40% margin, with low single-digit volume growth and 100 to 200 basis points from pricing.
• Divestiture of mainstream wine and spirits brands is complete, with the remaining portfolio projected to grow in the low to mid-single digits by FY28.
• A restructuring plan is set to deliver $200 million in savings by FY28, with $55 million expected in FY25.
• Corporate savings of $100 million are anticipated, benefiting the beer division.
• Operating cash flow is targeted at $2.7 to $2.8 billion in fiscal 2026, with high single-digit growth expected thereafter.

Operational Updates

• Hispanic consumer behavior is a concern, with 75% visiting restaurants less due to inflation and immigration worries.
• Modelo’s market share in California is twice the national average, showing growth potential.
• New product sizes, such as seven-ounce options for Modelo and Corona, aim to address price sensitivity.

Future Outlook

• Constellation Brands focuses on consumer-led innovation and aggressive advertising to maintain brand leadership.
• The company is enhancing data mining capabilities and improving SKU efficiency for better market responsiveness.
• Capital allocation includes a three times leverage ratio, maintaining an investment-grade rating, and a 30% dividend payout.
• A $4 billion share repurchase authorization and targeted M&A are part of the growth strategy.

Q&A Highlights

• Consumer behavior is closely monitored, with a focus on channel shifts and reduced convenience store visits.
• Constellation Brands views current challenges as transitory, leveraging its appeal to younger consumers.
• Shelf space remains a growth opportunity, particularly for Modelo, with increased influence in retail accounts.
• Significant investments in data and R&D are underway, focusing on regional strategies and product quality.

The full transcript provides further insights into Constellation Brands’ strategic plans and market positioning.

Full transcript - 2025 dbAccess Global Consumer Conference:

Steve, Analyst: And it prompted you guys to give a more muted outlook for fiscal ’twenty six and to recalibrate your longer term fiscal ’twenty seven, ’twenty eight outlook. I guess, as you kind of reflect back on trends year to date so far, just how you assess the moving parts? How do you assess market trends currently? And just sort of a scorecard of stable improving or not?

Bill, Constellation: Sure. A lot of things at the consumer level are challenging. You know, across the board, consumers are a little wary, and that’s doubled down if you’re Hispanic consumer. And as you know, Steve, roughly half our business is in the Hispanic community. So we’ve done a fair amount of research around that consumer.

What are they worried about? What are they doing more or less than they have been? And how is that impacting the business? The things that we’ve seen with that consumer is there’s a lot of concern about inflation. Yep.

There’s a lot of concern about the whole immigration question. That gets doubled down if you’ve had someone in your immediate family or friends who’ve been had that issue attached to them at all. And where where it’s playing itself out is in behaviors that are sort of anti our business, which is they’re going out to eat less. 75% of Hispanic consumers are going to restaurants less. There’s less social occasions.

You know, the Hispanic community often has lots of social occasions, and those tend to be beer occasions. So you’re seeing a fair amount of differences in how the consumer interacts. You know, the thing that’ll be interesting to watch from our perspective is how does that evolve going forward? You know, fortunately, our brand health metrics are as strong as they’ve ever been. There’s there’s real loyalty to our brands.

In the broader market, you’re seeing continued development of brand awareness, both aided and unaided. So we believe we’re in a good position as things continue to develop, but certainly, we’re in a challenging moment. The question I think is how long will that moment last?

Steve, Analyst: Has has there been any noticeable change kind of March, April, May from that among the Hispanic consumer? Do we see a step down and then we sort of going sideways across the bottom? Has it been a steady slide down? Has it been improvements? Any any any sense there?

Bill, Constellation: It’s tough to tell at this point. You know, often what happens in these things is you get an immediate plateau problem, and then it flattens out because people have adjusted their behavior in terms of what they’re doing or what they’re planning to do. We’ve gone to doing monthly studies, and the next the first one was what I just referred to. The next one’s due any day, so we’ll we’ll soon find out if we’re seeing any of that behavior. I think the interesting thing, we’re we’re even seeing channel shifting.

Right. We’re seeing people spending less time in convenience stores or stores that skew Hispanic to broader market stores. And we’ll see if that sort of behavior continues as time goes on as well.

Steve, Analyst: And among the non Hispanic consumers, we’ve got value seeking behavior. We’ve got varying you know, an active debate around how consumers are approaching beverage alcohol and what that what that’s doing to category trends. We got weather fluctuations. Memorial Day was wet and cold for those of you who didn’t know. Yeah.

I guess, how do you how do you how do you kinda think through the the the non Hispanic dynamic the the dynamics facing the non non Hispanic consumer and kind of parse that out? And what does that tell you about category momentum as we go into the balance of the calendar year?

Bill, Constellation: Well, that consumer is worried about some of the same things, not all, but some. Certainly, the inflationary environment is a big concern to people. And you are seeing some of that trade down behavior, generally not from our price point. It tends to be lower price points where the consumer is purely looking for what’s the most I can get for the least price. So you’ve seen some of that behavior going on.

But, you know, that’s a consumer that we’ve been developing. You know, as you know, using Modelo as a great example. Modelo was 80% Hispanic Yep. Several years ago. Today, it’s 55.

So we’ve we’ve spent a lot of time, a lot of energy, a lot of media dollars developing in that consumer marketplace, and I think we’re in a good position to continue to to see that develop as time goes forward. Right.

Steve, Analyst: So I think, you know, through all of the discussions we’ve been having last couple months, you’ve been pretty consistent that the headwinds that we’re you you view them as transitory. Mhmm. I guess, maybe just refresh us on the the major building blocks of that logic as to why transitory versus something that’s more structural. And then what what do think we we need to see for the for the category and for Constellation to more fully rebound?

Bill, Constellation: So if you think about the things that people wanna talk about about what’s structural versus not, There’s there’s an argument that younger consumers are not consuming as much. Well, from our perspective, the 21 to 25 year old cohort for our business, our percentage of business with that cohort is twice what the industry average is. So we’re able we’ve been able to bring newer younger consumers into our franchises. So that’s good. GLPs.

Yeah. There’s just no evidence that GLPs has a big impact. Most people are only on them for six months if they’re on them for that long. And when you look at the list of things that people change about the behavior while they’re on them, alcohol beverages way down the list right there with water. Right?

People change. The water thing is a different question, but it’s way down the list. So you you start to think about what else. You know, people brought up cannabis. If you look at the markets where cannabis has been legal for a long time, again, you see no real differentiation of what alcohol did before or after.

I think the biggest thing to to answer your specific question is when is the consumer going to get more comfortable? When are they going to revert to their their what I would call more normalized behavior? Because they are loyal to our brands, and we’re very fortunate that we do have that strong brand loyalty. It’s part of the reason we’re continuing to advertise at an aggressive rate. You know, we’re number one and number two share of voice with Modelo and Corona, respectively.

And we’re going to continue to do that so that we’re ready to go when the consumer is ready to revert to more normalized behavior.

Steve, Analyst: Okay. And as you think about the reacceleration that you’ve anticipated looking out to fiscal ’twenty eight and beyond, Maybe flipping the lens, are the reasons to be more structurally positive on the category, your position within the category? And maybe highlight some of the some of the initiatives you have in place in fiscal twenty six to to kind of fight against some of the headwinds that we’ve we’ve talked about?

Bill, Constellation: Well, we like to point out our brands, our company has been the Surcana growth leader six of the last eight years in CPG. So we’ve got a long history of strong growth profile for our business. I think that speaks well to it. Some of the things that we’re doing this year, when you have a consumer that’s concerned, I think having the right price pack architecture is really important. You know, I’ve often said I think Coca Cola does a great job at that.

You tell me how much money you have. There is a Coke product in every store that allows you to spend that amount of money. We in the alcohol beverage business, I don’t think have done as good a job at that particular topic. But we’re doing seven ounce in both Modelo and Corona. We’re doing eight ounce cans with Corona.

So we’re finding ways to put price points in place so that the consumers were very loyal to us irrespective of how much money they may have to spend at a particular point in time, we have a product available to them. We’re also as you know readjusting our price on oral. The light category as a sector has been somewhat challenged. We think oral is a great brand to go after that particular point. And so literally as we speak, the price is being adjusted on Oro to give the consumer a bit of a value for in the light sector from a brand name they know and trust.

Steve, Analyst: Great. And Garth, maybe we can get you involved here. I guess from as you we put up pull out to get all that together from a financial perspective. Can you just ground us on how that all kind of layered into your thinking in terms of fiscal twenty six guidance? And we’ve talked most about top line trends, maybe a little discussion around it, what you’re expecting from a bottom line perspective, both within beer and within wine and spirits.

Garth, Financial, Constellation: Yes. Well, for well, I guess, maybe we’ll start in reverse. I’ll start with wine and spirits then move to beer. In terms of margin profile, this is going to be a bit of a transitional year for us in the beer business. Earlier this year, we announced that we were reshaping our wine and spirits portfolio through the divestiture of primarily our mainstream brands and some related assets.

As of last night, that transaction has now officially closed. So we’re really happy about that. And that portfolio that remains is a portfolio that’s going to participate mainly in categories that have top line headwinds in terms of growth. So there’ll be in price segments that are expected to grow through FY twenty twenty eight in the low single to mid single digit range. But they’re also squarely and really attractive profit profiles, if you will, much more profitable from a margin perspective than the brands that we divested.

We also announced at that same time that we had a pretty robust restructuring process or program in place and expect to yield savings in excess of $200,000,000 Those savings won’t be fully realized until FY twenty eight if you think about the timing when those start to funnel through. But that all plays into what we’re expecting from a margin perspective from our wine and spirits business. Of that $200,000,000 we’re expecting to get about a hundred million out of the wine business. And that’s by again by FY ’20 ’8 and in FY ’25 we expect to reap about $55,000,000 worth of benefits. So that’s really kind of what underlies the profitability of our wine business going forward.

Just touching briefly on beer because I imagine we’ll talk about the margin profile for that in a little bit. But there’s also a component of the cost savings agenda that will that will benefit our beer business. I mentioned about a hundred million going to or coming out of wine and spirits. About another hundred will come out of our corporate functions as well as our beer division, mainly by the way our corporate functions. Even though they come out of the corporate function, there will be an allocation benefit to our wine or to our beer business.

And any benefit that we get over and above expectation for our beer business. You know, we look to to invest back into to the growth profile and the opportunities that Bill mentioned a moment ago.

Steve, Analyst: Yeah. Okay. And that that’s a good segue. So that that, you know, despite recalibration of top line expectations, you you’ve held firm to your 39% to 40% beer margin target. You know, as you think about the, I guess, the the the path to fiscal twenty eight, maybe what’s the framework you guys you use to think about the why that’s the right margin range?

What are the the the kind of the positives balanced against the the puts and the takes around that number?

Garth, Financial, Constellation: Yeah. Sure. Well, you know, first of all, you know, we’ve been saying for years, we think ’39 to 40 is the right range over the medium term to think about our beer business. You know, if if I don’t say it, Bill will, those are best in class margins, not just in beer, but in consumer packaged goods. You know?

And and honestly, the puts and takes are kind of the same that they have been. You know, on the positive side in terms of tailwinds, we still expect to get sort of at least low single digit volume growth, which will help with overhead absorption, obviously. We continue to believe that we’ve got the ability to take, you know, one to 200 basis points of growth through pricing, And we’re gonna have a robust savings agenda. We’ve always had a robust saving agenda as part of our our plan. We’ve talked more about that in the last couple of years just because the quantum of dollars that have have been bigger than they had been in years past.

That’s because, you know, twofold. One, we’ve been really successful in terms of clawing back some of the outsized increases we saw during the two year period of time where we had really elevated inflationary impacts against our business and our procurement teams done a really nice job of RFP in the business and and reentering contracts. There’s also this migration that we’ve talked about for a few years now around being moving from a a builder to an operator. Again, that has yielded real savings for us as we’ve gone from sort of 50 foot rail cars to 60 foot rail cars, double stacking in those rail cars, just a couple of the initiatives that that that we’ve had underway. So all of those will be, you you know, the the the tailwinds.

Headwinds will be the the usual suspects, inflation, little bit of fixed overhead absorption drag as we built put in incremental capacity, and then depreciation. We’re doing a nice job, I think, managing depreciation. We’ve talked about this modular approach to expansion. And what we’re able to do is as we’re seeing demand queues change, you know, we can extend when we bring our lines or facilities, you know, on stream and and then better manage the depreciation impact in the business. But with with all that said, you know, again, nine to 40 is where we think is the right way to think about the business.

But in any one year, we might have more, you know, tailwinds and we’ll be above 40. In some years, we’ll be you know, have more headwinds and be with below 39. Yep.

Steve, Analyst: Okay. Great. And maybe we can maybe this question’s a little bit for both of you. You know what? And, Bill, you alluded to it.

The the the business operates with a a fairly simple SKU assortment. And, you know, I guess, such that there’s there’s probably good growth and good ROI with a little little bit more complexity, right, if you’re if you’re choiceful about it. So how do you think about and and prioritize different flavors, different, you know, package sizes and formats? And and, I guess, you know, is there a level I guess, the other side, is there a level of complexity with that you’re trying to avoid where all of a sudden the the the calculus becomes more of a a net detriment than a than a positive?

Bill, Constellation: Well, why don’t I start? We always start with the consumer. Are there places where we can have a product or SKU that meets either a consumer or consumer occasion that we’re not addressing today? So and I would argue that follows into multiple things. So if you think about the price pack architecture, that fills price point, price need, and so on.

If you think about things like Corona Sun Brew, new product, it was specifically with what we observed younger consumers doing on spring break. It was a and it’s a great product that goes to a consumer trend, which is interest in higher flavor. Yep. We introduced Corona non alk. Again, there’s a certain sub segment of the audience is thinking about moderation.

We have a product for them with that. And you you could argue, okay. Well, you’ve now said you’re going to expand your SKU count. Our SKU count’s about a 60. Most of our competitors are several times that.

So if you’re one of our distributors or one of our retailers, the efficiency of our portfolio is radically better than what most in the industry see. And that’s been a very big help in what you’ve seen as we’ve gained shelf position over time. So we’re we always started the consumer lens. Where can it add value? Where does it serve a need that isn’t serviced today by our business?

And that’s kind of the approach we take relative to SKU assortment.

Garth, Financial, Constellation: I mean, I I think Bill covered. I mean, the only thing I would add is that, you know, we’re investing in capabilities to ensure that we can do just what Bill said. I mean we’re doing that kind of in three in three buckets, if you will. One is in, people to make sure we’ve got the right people doing the right with the right capabilities to be able to mine information and data to see where it is we wanna play not just from the consumer led different liquids or formats, but also from a price pack architecture. We’re investing in systems and technology to to dial it in even further.

And then the investment that we’ve made in the breweries over the last ten years have really enabled us to have that extra capacity and more flexibility and complexity so that we can, you know, innovate and and innovate more quickly to respond to the consumer led trends that Bill referenced.

Steve, Analyst: What’s the range of, you know, profitability within within the beer segment around that 30 to 40% sweet spot? And as you think about new innovations, new introductions, new SKUs, you know, what’s the profit hurdle that you’re trying to achieve, and how much how much dilution are you will able to or are you willing to accept upfront for for growth? And how just how do think about that that dynamic?

Garth, Financial, Constellation: Yeah. I mean and that’s not necessarily a one size fits all answer. I mean, you know, obviously, we’d like everything to be at least margin neutral. And there are some things we’ve looked at that, you know, could be slightly dilute dilutive over, you know, initially, but over time, they become more neutral to the overall, you know, portfolio. So that’s kind of what the goal is.

You know, to the extent what would we accept from a dilutive perspective longer term, I think that you would skip down to what is the size of the opportunity and, you know, does that create, you know, enough incremental real dollars, you know, to to to have that dilutive effect.

Steve, Analyst: Okay. Great. Bill, maybe we can zero in on on brands, Modelo, Corona, and Pacifico.

Bill, Constellation: Sure.

Steve, Analyst: I guess, how would you summarize the role that that each of those brands plays in the portfolio? And then, you know, what is the interplay between them and among them in the in the marketplace?

Bill, Constellation: We still believe Modelo’s got a tremendous runway. When when you look at the state of California as an example, the the share that we have there is twice what the national average is. So we still see Modelo as a real growth driver going forward. The number of people that were shocked to know that it’s their number one beer by dollars in The US when it happened, it kind of blew us all away a little bit. So there’s just so much room to grow.

If you look at the profile of and I’m gonna get on to corona a second, but what corona was twenty years ago, the the demographics looked very much similar to what Modelo is today. So if you look at if Modelo ends up someday down the road being, you know, sixtyforty in the general market, the upside to that is immense. So that creates, I think, a great opportunity for that business to continue to accelerate. Corona, on the other hand, is was something we’re looking for a bit of more neutrality. You know, it’s still gaining share, but if we can sort of hold our own with the core Corona Extra business, I think we’d be happy with that because we have things around it that are doing very well.

Familiar is doing extraordinarily well. It’s up double digits. The Corona non alc business, it the second year doubled after the first year almost in spite of us, meaning we really didn’t put a lot of time, energy or money buying it. But again, that follows a consumer trend and that’s doing very well. We’ve added another pack this year to continue to accelerate around that.

And then when you think about Pacifico, know, Pacifico is like a baby Modelo. It it started heavily in the West. It’s the number two beer in Southern California to Modelo, but 50% of it now is outside the state of California. So you’re starting to see it develop around the country. And as you pointed out, you know, it’s a double digit growth driver for us, which is terrific.

So it also skews a bit different. It’s a bit more Gen z. It’s a bit younger. So that fits a little bit of a different niche than the other two, which compete a little bit more against each other. So we think each of those has a real purpose and will be an important factor of what our business looks like as we move forward.

Got

Steve, Analyst: And how do you maybe, Garth or Bill, you guys tag team, but how do you ensure that each brand is getting the appropriate amount of support, both in terms of, you know, innovation, care and feeding as well as just just basic marketing commercial support?

Bill, Constellation: Well, I’m good.

Garth, Financial, Constellation: Well, go ahead, Bill.

Bill, Constellation: See that? You get an open ended. You know, we gotta keep in mind, Modelo is the number one share of voice. Corona is number two. So we significantly support those businesses.

And I’m sure Garth will tell you in a minute, we rarely say no if we have a good ROI against our business. I think the big question is how much more gas do we put on the Pacifico fire? You know, we’re again, we’re starting to see that build itself around the country and that’s part of the debate. When do you really say, okay, let’s open up the kimono here and get going because there’s a lot of interest in that particular brand. So we will we’re going to continue to support both of those businesses because we think there’s still a lot of room around the country.

Garth, Financial, Constellation: Yes. And Bill touched on a couple of specifics, so I’ll speak about it a little bit more generically. So first of all, in mind something Bill said earlier on. The brands, the brand health continues to be fantastically strong.

Steve, Analyst: On all three.

Garth, Financial, Constellation: So we’ve got a great base to build on, which gives us the confidence to continue to invest as Bill just said. And then furthermore, we continue to get growth out of the business, which allows us to increase our incremental investment from on a year over year basis. So we do have plenty of dollars to go around to fuel the investment. As as we’re looking across brands, you know, we always look to balance, know, our investment across the effectiveness and efficiency, if you will. And so for example, if you look at like live sports, very, very effective just because of what the reach, the range of audience that that has.

And then we’ve started from an from an efficiency standpoint over the last few years, invest more in digital advertising. Right? Because that’s targeting individual consumers a bit more precisely. So, you know, we we we we are very, very happy with that discipline. Again, and you you’ve probably heard us talk about this somewhat in the past as well.

We’ve changed some of our partnerships in terms of agencies, which have really led to strategic relationships that have resulted in us being more efficient in our marketing spend in terms of sort of buying advertisement or buying advertising, managing inflation. So again, we’re squeezing the most out of the dollars we put against the brands. Long story short, that’s why we feel good about the eight and a half percent target that we’ve got out there in terms of our guidance relative to marketing spend. Yeah. And then as Bill said, because just because I want to double down on it.

We will continue to invest. I mean, we don’t compromise

Steve, Analyst: Yeah.

Garth, Financial, Constellation: When it comes to marketing, right? We want to continue to invest in the brands, drive the top line. And when our marketing team comes to us with with compelling return generating opportunities, you know, we we look at those positively. And and last year, I think is a good example where, you know, we approved a significant amount of incremental spend in the last second half of the year.

Bill, Constellation: Can I pile on Yeah? You may. Chillada is a great example of where some of that spend went that Garth was just talking about in the back half of the year. You know, that was a business that sort of happened again almost in spite of us. But it but it matches consumer trends.

It’s high flavor, but it was all 24 ounce until about three years ago. We’ve introduced multipacks, smaller sizes. It opened up more demographic. It opened up more occasions, But the awareness level outside of the core consumer is pretty low. We did our first major media effort last fall to introduce that to a broader audience because that meets consumer trends.

Yep. You know, a lot of people have asked us in the few individual meetings we’ve had today, what’s going on with smaller format or ready to drink stuff? I I would argue Chelada is a great example of where we have addressed some of that high flavor single serve needs for our business. Yeah.

Steve, Analyst: Do you have you mentioned number one, number two share of voice for Modelo Corona. Are do you have share of voice metrics relative to share of market metrics? You know, where do where do you want share of voice to be for each of those three brands relative to market share? Is is that a way you think about that way?

Bill, Constellation: We I’d say we think about it more of we want effectiveness. We want great return for our spend, and we track it very carefully. We know exactly how much and how fast we’re going to get return on our dollars when we spend those. We’ve got an algorithm that tracks it literally on an ongoing basis. Okay.

Steve, Analyst: Another long time goal of the company, Bill, has been securing more of your fair share of space in coolers on shelf. You know, I guess, would you how would you rate how what’s the scorecard on that, you know, if you think about the last couple of years? And how are, you know, conversations going in the you know, at present on that on that front? And I guess a little bit of what’s kind of the support level you’re getting from distributors as well?

Bill, Constellation: Yeah. Shelf space remains a great opportunity for us. When you think about a brand like Modelo, it’s still Bud Light’s thirty percent to 50% more pods than we have even though we’re bigger in terms of dollars. So a lot of opportunity goes there. I think a couple of the changes that you’ve seen is it wasn’t that long ago that we had less influence with those critical large retailers.

Today, we have influence either as a category captain or as a validator in over 80% of accounts. So we have more of a say in the equation. How has that paid off? A couple of years ago, had double digit share gains. Last year, we had high single digit.

We think we still will continue to see that. And on an ongoing basis, we expect to see share gains in advance of our growth profile because we are the ones that tend to bring the profitability and growth to the category. That works for a retailer. But to your point, it also works in the wholesale level. Our relationship with our wholesalers are top notch.

Part of what the real value is, is goes back to your earlier question about efficiency. With a 60 ish SKUs, we’re very efficient for a wholesaler that wants effectiveness and efficiency in their delivery systems.

Steve, Analyst: And do you what’s the attitude towards you know, you mentioned being consumer led. To what extent are you sort of distributor led in terms of I’m sure they’re pulling they’re pulling for from you for a lot of things, but you’re also competing, you know, in a competitive system.

Bill, Constellation: Sure.

Steve, Analyst: So what’s been their overall approach to to your innovation efforts? You know, are they satisfied? Are they hungry for more? You know, I don’t think they’re overwhelmed, but you tell

Bill, Constellation: me if that’s

No. I don’t. I I hope that they’re not overwhelmed. But part of what we have said to them is we’re only going to bring you things that have been validated and tested. We’re not gonna throw anything against the wall that we don’t believe is gonna be valuable and that we haven’t both tested and plan to support.

They like that answer. Right? They don’t want to get hung out on a limb saying, just go get something done. The efficiency point, you know, we’ve made that a couple of times now, but it it never ends relative to the discussion at the distributor level. They want growth.

Growth’s been tougher. They want profitability. That’s been tougher. So and especially at our price point playing in all in the high end, we bring a better margin profile for them. We bring growth profile for them, and they’ve been highly supportive.

We work very closely with them as we develop our annual plans every year.

Steve, Analyst: Okay. Great. So, Gareth, I wanted to pivot to the cash side of things because I think the company’s in a very different position than it was a few years ago from a cash perspective. Plans to generate, you know, two point seven, two point eight billion in operating cash flow at fiscal twenty six and see it grow high single digit, low single digit off that base over the next couple of years. You you know, I guess, talk through some of the unlocks in the of that cash flow.

And you talked about modularity of manufacturing and and and from a margin perspective, how that’s helping the margin profile. But it’s also, obviously, help helping cash even when when growth is less robust. So talk to me about sort of the the journey you’ve been on to improve cash flow, your kind of visibility and and of that cash flow over the next couple of years and, you know, the key drivers there.

Garth, Financial, Constellation: Yeah. Well, look, this is one of my favorite topics. Right? So now you’re right. We are in a different spot now than we were a few years ago and a lot of that story has to just basically do with CapEx if you will right.

So you referenced the cash flow for this year but if we look out to FY twenty eight we’re expecting to generate roughly $9,000,000,000 of operating cash flow and roughly $6,000,000,000 of free cash flow. The real inflection again has been in in CapEx. In f y twenty five, which is kind of our high watermark, f y twenty six will still be a little bit elevated because we moved some some investment in between years. But in FY twenty five, CapEx as a percent of net sales was about 13%. And in FY twenty eight, we’re forecasting that to be more like four or 5%.

So huge unlock. Obviously, the growth of the business has been an unlock as well. And so, you know, this is all of this cash flow sort of supports the the the capital allocation priorities that we’ve had in place for the last five or six years. We always look to manage the short term needs with the longer term aspirations of of the organization, and that’s really served us well. You know, we’re gonna continue to be to target a three times leverage ratio.

We’re going to want to maintain our investment grade rating for all the benefits that that brings. We’re going to seek to maintain our 30% dividend payout. We still have, even though there’s a big shift coming in terms of the the quantum of CapEx, we’ll still invest in the business. And through FY ’28, it’s about 2.2, 2 point 4 billion dollars of CapEx across the enterprise, about 2,000,000,000, you know, in in in beer. And then, you know, we’ll against our our newest, our latest share authorization we’ve got from our board three years, four billion dollars.

You know, then last is, you know, m and a, which, you know, we’ll use like we’ve used in the past several years, which is targeted portfolio gap filling type of type of initiatives.

Steve, Analyst: K. You talk a little bit about just balance sheet structure, debt structure, and how how you think about that. Last night, you also alongside the the deal closure, you also announced the the early redemption about, think, it’s 900,000,000 of of senior notes over the next couple of years. Sort of the the logic in in in that announcement and just how you’re thinking about the overall, you know, debt profile.

Garth, Financial, Constellation: Yeah. It will look, you know so first of all, as I say, I mean, we think right now, times is the right target for us. Now given the cash flow generation, we have the ability to take a look at that on a year to year basis and say, do we still think three times is the right amount or not? And, you know, to the extent, we think it should be less than that. We, you know, we can act appropriately or to the extent we think that there’s an opportunity, maybe a share price dislocation we wanna pulse up for a short period of time, you know, we could do that.

We have that flexibility. As it relates to managing the the maturities, you know, last night was kind of a continuation of what we started earlier this year. You know, we’ve been in the market twice this year, three times really this year to raise to to raise debt when we found attractive windows. And that really is really is to manage debt that’s coming due within the next, you know, nine to twelve months. So, you know, we’ll continue to be opportunistic in that in that regard.

Steve, Analyst: Okay. Bill, we talked about, you know, I guess, in being consumer led in the r and d process and in marketing, we talked about the the amount of money you’re spending, you know, behind some of these new initiatives. You’ve also you alluded to building a lot of capabilities, you know, whether it’s, you know, whether it’s consumer insights generation or marketing ROI or, you know, in market commercialization. Just where do you think the biggest, you know, advantages of Constellation sit relative to market? You know, where are you at most ahead in terms of cape commercial capabilities?

And where do you see the biggest opportunity to build more strength?

Bill, Constellation: I think our data assessment has radically improved. Okay. So we’ve gone we’ve done much more on a regional basis. I mean, it wasn’t that long ago and you’ll remember this that we kind of did everything on a national basis here, not pricing. We always did that on a localized basis.

But if we were going to do an initiative and went everywhere, that’s probably not the best approach. And we’ve done a lot more based on solid data. What’s the algorithm show? What’s the benefit? What’s the ROI on the spend and on the approach that we’re taking.

So I think that’s been important. I think we’ve gotten much more focused on exactly what we ask our organization to execute against. Again, than broad based, much more specific. You’re in a market where corona light is a big factor, okay? We are expecting that this will be what the result of that answer is.

So putting data first, and I think that’s been a big improvement. The second thing I think is is our capabilities on both the actual liquids. Mhmm. You know, I’ve always been a big fan for my entire career. Stuff’s gotta taste good.

You know, don’t tell me, oh, yeah, you’ll like it. It’s it’s low out, so therefore it’s got to taste like crap. I’m not a big fan of that. I think consumers want to have something that they enjoy. And I think our team and our r and d team has done an exceptional job of when we introduce something, if that’s a flavor characteristic or a product characteristic that you’re looking for, you’re going to get a damn good one.

I think that’s been a real advancement that we’ve had And I think it plays out in terms of the quality of things like Chelatos or Sunbrew or Modelo Aggress, Frescas or those kinds of things is we’re making exceptional products. I think the same would apply to the wine business quite frankly. So I think those capabilities are all there. I’d say the place where I still want to see us do a better job, we’re still in the early stages on the digital side of our business. And while I think we’ve made leaps and bounds, I still think there are other leaps and bounds for us to go get.

Steve, Analyst: Okay. When you on the data and on, I guess, and on, you know, kind of liquid r and d, you know, to what extent are you investing in internal proprietary, you know, proprietary data acquisition, proprietary r and d versus partnering without with outsiders and leveraging third third parties in your in your efforts?

Bill, Constellation: There’s a little of both, but we do most of it internally. We have a major r and d lab at both in The United States and another one in Mexico. Yep. So we rely mostly. We use flavor houses for certain things if there’s flavor involved, but most of it’s done internally.

Steve, Analyst: Okay. We’ve got two minutes left. So if you think about, you know I’m gonna take you beyond 2028 and think about the next kind of five years, looking at the 2030. What what are the the the the critical goals or the biggest aspirations, the the things that you wanna be able to say when you’re back here June 2030 that you’ve been able to achieve over the last five years?

Bill, Constellation: I think a number of things. I think the growth profile of the business, we wanna continue to outperform, gain share. We wanna win more consumer mouths. I think we want to make sure and some of the things Garth talked about relative to our capital allocation, we’ve been very consistent about that for the last six point five years. I think we want to continue to do that with the appropriate amount of share buybacks and dividends that are attractive to our investor base.

And I’d say the single biggest thing I’d like to see is I’d like our stock to reflect our results sooner than later.

Steve, Analyst: It’s a good ending. All right. Thank you, guys. Thanks to Constellation. Thanks to

Bill, Constellation: all for joining us.

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