Constellation Brands, Inc.

Welcome to the Constellation Brand Q1 Fiscal Year 2020 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 will now turn the call over to Patty Yon-Erlaub, Senior Vice President of Investor Relations. Please go ahead.

Thanks, Daniel. Good morning, and welcome to Constellation's first quarter 2020 conference call. I'm here this morning with Bill Newlands, our CEO, and David Klein, 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 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.

Thank you, Patty, and good morning, everyone. Welcome to our discussion of Constellation's first quarter sales and earnings results, which reflect an excellent start to our new fiscal year. Before I get started with our business review, I would like to emphasize three key takeaways on this morning's call. Number one, we are confident in our ability to close the Wine and Spirits transaction with Gallo. which we expect will occur in the second half of calendar 2019. For now, we have updated our fiscal 2020 EPS guidance to assume that we close at the end of the second quarter, but we will adjust accordingly as we get more clarity on the exact timing. Meanwhile, we are fully committed to supporting our entire portfolio throughout the transition. Number two, The transformation strategy for our wine and spirits business is working, led by the power brands in our portfolio, which achieved over 4% depletion growth in the first quarter. This collection of faster-growing high-margin brands is expected to drive the growth of the business going forward. And number three, we posted strong net sales and margin results for our beer business in the first quarter. driven by continued outstanding performance by our growth engine that is Modelo Especial. In addition, we are pleased with the nearly 7% overall depletion growth, even with Corona Extra seeing some impact from unfavorable weather in several of our largest markets during the quarter, while overlapping last year's highly successful launches of Corona Premier and Corona Familiar. Bottom line. we remain confident in our ability to achieve 7% to 9% net sales and EBIT growth for our beer business in fiscal 20. Speaking of beer, during the first quarter, the Constellation beer business continued to gain share with growth across all channels, driving one-third of the growth of the high-end U.S. beer market. Modelo Especial was the most significant growth contributor within our portfolio for the quarter. This exceptional brand has excellent marketplace momentum and achieved the number one spot as the top share gainer in the U.S. beer category, with depletion growth of more than 17%, a sequential acceleration compared to our fourth quarter trend. We continue to reap the benefits of our Modelo advertising investments, which are resonating with both our core and new consumers. We recently launched the Modelo 32-ounce bottle as we continue to take advantage of the single, serve, and distribution trade-off opportunities we have in the off-premise. We also made excellent progress in the on-premise with the Modelo draft format increasing more than 20% for the quarter. Corona Premier continues to drive the Corona brand family performance. The national TV advertising campaign as well as the draft rollout, are propelling the momentum of this brand, which was a top share gainer in IRI channels, while also posting double-digit depletion growth during the quarter. This summer, Corona Premier began a multi-year sponsorship deal with the United States Golf Association to be a proud supporter of the U.S. Open. And the newest innovation in the Corona brand family, Corona Refresca, which launched nationally at the end of May, has already gained all commodity volume or ACV distribution of more than 30 since its introduction. Pacifico also produced strong double-digit depletion growth this past quarter, driven by the national advertising campaign and retail promotions, which are increasing Pacifico's in-store presence. Overall, I believe we are well-positioned throughout the remainder of the summer selling season with a great lineup of marketing and promotional activities to support the ongoing growth momentum of our entire beer portfolio. Moving now to Wine and Spirits. As you know, Robert Hansen was recently hired as our new president of the Wine and Spirits business. Robert was previously a six-year valued member of our board of directors and has extensive consumer product experience from his prior senior management roles at John Hardy American Eagle Outfitters, and Levi Strauss. Robert shares the Constellation passion for developing brands that consumers love, and we are thrilled that he has joined our executive management team. Welcome to Robert. The Wine and Spirits business delivered first quarter results that exceeded our previously communicated expectations. As I mentioned, our power brands posted industry-leading depletion growth of over 4% for the first quarter. This portfolio includes key brands like Kim Crawford, Mayomi, Svedka Vodka, The Prisoner, and High West, which continue to outperform the market and gain share. Overall, we expect these brands to be the key drivers of the business long term, and we are extremely bullish on the future runway for these higher growth, higher margin brands. In addition, our wine and spirits innovation agenda has been successful with a focus on fast-growing categories, emerging formats, and new flavor combinations. We'll continue to expand our bourbon barrel-aged innovation program, which has been a resounding success, selling over one million cases in its first two years. A great example includes the new Robert Mondavi private selection rye barrel-aged red blend, which is the first rye barrel-aged wine introduced at a super premium price point. In July, we'll begin shipping Eternally Silenced, which is the first Pinot Noir addition to the prisoner portfolio. This premium product introduction will be sold in the over $50 price segment. We will continue to support our innovation and brand-building efforts throughout the remainder of the year with impactful marketing campaigns to strengthen and build the portfolio. We have solid programming in place for our key power brands this summer, including the launch of a new TV advertising campaign for the Woodbridge portfolio. In addition, we have forged a relationship with the NFL to not only promote and sell our Woodbridge brand, but to introduce our new Crafters Union Wine in a Can. which is the perfect format for football games and tailgating. Kim Crawford continues to align with consumers through its partnership with the U.S. Open and other major tennis events and recently launched a new TV and digital advertising campaign that will be featured this summer. These campaigns and sponsorships are just a few examples of the initiatives we have planned to strengthen the portfolio and drive consumer awareness, and incremental growth. Our Spirits portfolio has recently gained momentum with increases in growth and velocity across the Svedka portfolio bolstered by the new Bring Your Own Spirit national advertising campaign. Plus, the new innovation in the product lineup, Svedka Rosé, is already exceeding expectations. During the quarter, Constellation Ventures acquired a majority stake in Nelson's Greenbrier, which is an iconic Tennessee whiskey that plays well in emerging categories of American whiskey and craft. It is the first Ventures investment that will be fully integrated into the Constellation sales and distribution network, which provides a significant opportunity for growth of this brand. With our market reach, distributor partnerships, and consumer insights. We are especially excited about the introduction of Nelson's Greenbrier Unique Tennessee Whiskey to consumers this fall, while the award-winning Bellmead Bourbon brand continues its rapid market growth. As we begin the transformation journey for our wine and spirits business, I would like to reiterate our long-term goal for this business, as we intend to grow net sales in the mid-single-digit range with operating margins migrating to 30%. This quarter, we have made progress toward that goal, and we look forward to shaping our wine and spirits business to be a best-of-class consumer goods portfolio with a market-leading sales and margin profile. Now, a few comments about our investment in Canopy Growth. which continues to be the global leader in total cannabis sales. During the quarter, Canopy Growth and Acreage Holdings entered into an agreement that grants Canopy the right to acquire acreage and enter the U.S. cannabis market once federally permissible. We're excited about this opportunity as it provides a path for Canopy to have a leading position in the U.S. upon federal cannabis reform. Canopy and Acreage shareholders overwhelmingly approved this transaction, which will provide the opportunity for Constellation to extend the duration of Canopy warrants, which provides long-term financial flexibility for cash deployment to our shareholders. David will provide additional details on that later in the call. And while we remain happy with our investment in the cannabis space and its long-term potential, We were not pleased with Canopy's recent reported year-end results. However, we continue to aggressively support Canopy on a more focused long-term strategy to win markets and form factors that matter while paving a clear path to profitability. We believe some of these branded form factors include vape, beverages, and edibles that will command higher margins. These products in Canada, as well as CBD products in the U.S., are expected to come online during the fourth quarter of this calendar year. In closing, I am pleased with our strong start to the year. Excellent execution of our first quarter results demonstrates that we continue to deliver on our key strategic imperatives across our beer, wine, and spirits businesses, and we I'm excited about the prospects across the business for the remainder of this year. With that, I would like to turn the call now over to David, who will review our financial results from the quarter.