Constellation Brands, Inc.

Hello, and welcome to the Constellation Brands Q1 fiscal year 2024 earnings call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star one at any time to be placed in the question queue, and we ask that at that time you limit yourselves to one question, then return to the queue. 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.

Thank you, Kevin. Good morning, all, and welcome again to Constellation Brands Q1 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 measure and any non-GAAP financial measures discussed on this call are 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 investor 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 is Bill.

Thanks, Joe, and good morning, everyone. We are off to a strong start in fiscal 24 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 Beard 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, where the brand posts double-digit dollar sales growth in Sarkana 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 and track 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 Cholata brands remained a top 10 dollar share gainer, with further support from our variety pack launched last year, the number four new product in Sercana Channels, and from the launch of new Sandia 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 tract channels. Third, the expansions of our beer brewing capacity continue 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 watersheds. 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 high 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 track channels. Maomi 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 Maomi 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 mainstream wine portion of the business, the reinvention of Woodbridge is underway to address the growth headwinds 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. track channels improved throughout the quarter. The overall spirits portfolio maintained its share in U.S. track channels with notably strong dollar sales performance across its higher-end tequila and RTD products. In particular, Me 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 DTC business 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 wine 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 24. as performance is expected to continue to accelerate throughout the course of the year in line with seasonality and the business's annual plan, particularly as the share of net sales from our Aspera, 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 24 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.