Constellation Brands, Inc.

Greetings. Welcome to the Constellation Brands Fiscal Year 2024 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the prepared presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Joe Suarez, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Daryl. Good morning, all, and welcome to Constellations Brands Q2 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 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 consolations SEC filings for risk factors which may impact forward-looking statements made on this call. Following the call, we'll also be making available in the investor section of our company's website a series of slides which highlight 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, which will help us to end our call on time. Thanks in advance, and now here's Bill.

Thank you, Joe, and good morning, everyone. Welcome to our Q2 fiscal 24 call. In terms of key headlines for the second quarter, I'm pleased to report that our team once again delivered solid overall performance. First of all, our beer business led the charge as the number one share gainer with accelerating shares across the key summer holidays. We continue to invest in growth for this business as our team looks to seize opportunities to gain incremental awareness, shelf space, and household penetration for our brands in the back half and beyond. Secondly, our wine and spirits business continues to progress along its journey to realize the full benefits of its transformation. Prioritized investments in our largest wine and spirits higher-end brands are yielding outperformance in their respective categories, while partially offsetting and helping to reduce headwinds from our mainstream brands as they continue to shift the mixed profile of our portfolio. And third, our continued discipline around capital allocation priorities contributed to a strong overall performance in the quarter and sets the stage for fiscal 24, being another solid year of profitable growth and shareholder returns. That said, let me provide a little more color around our key performance drivers in the quarter. As noted, our beer team once again delivered remarkable results. Not only did we remain the top share gainer over the entire critical summer season, we also extended our leading position from Cinco de Mayo to become the number one share gainer in track channels during the 4th of July holiday. And although it falls slightly after our second quarter end, I'm also pleased to report that we further accelerated our share gains during Labor Day. Modelo Especial remained the key driver of our strong performance, achieving double-digit volume growth in tract channels and an 8.6% increase in depletions, ultimately strengthening its position as the top brand across the entire U.S. beer market in dollar sales fiscal year to date. The Bronner Modelo brand family also delivered phenomenal results, with Chiladas achieving 50% volume growth in track channels and an increase in depletions of over 40%, while Oro continues to build on a solid launch, increasing its share gains in the overall beer category and performing in line with our plans for the fiscal year. Beyond Modelo, our Corona Extra and Pacifico core beer brands also continued to perform strongly, Corona Extra delivered solid, low single-digit growth in depletions and track channel volumes and was the number six share gainer in the category, while Pacifico achieved 15% depletion growth, track channel volume growth of approximately 27%, and was the number 11 top share gainer in track channels. Our beer brands continue to resonate strongly with the consumer, driving demand for our brands in the second quarter, which supported double-digit net sales and operating income growth in our beer business. This gives us confidence to shift our fiscal 24 net sales and operating income guidance for the beer business to the higher end of our initial ranges, that is, 8% to 9% and 6% to 7% growth, respectively. That said, it is important to remember that for our beer business, we indicated that only 45% of total volume for the fiscal year will be shipped in the second half, which aligns with the regular seasonality of beer demand in the U.S. and the timing of our brewery maintenance activities. Beyond fiscal 24, we continue to see significant opportunities to maintain the growth momentum of our beer business, particularly due to the resilience of key secular trends in the consumer landscape, like ongoing consumer-led premiumization across beverage alcohol and the continued outsized growth of the Hispanic population in the U.S., as well as the relentless focus of our beer business on closing the distribution and awareness gaps that still exist across our brands, and on developing and scaling new and exciting products aligned with consumer-led trends. We look forward to sharing more details on this compelling outlook at our upcoming Investor Day on November 2nd. Moving on to Wine and Spirits. Our Wine and Spirits business continues to make headway on its vision to become a bold and innovative higher-end market leader. In the second quarter, our largest premium wine brands, Mayomi and Kim Crawford, outperformed their corresponding category segments in U.S. tract channels. They both increased their respective share in the overall wine category. Our largest fine wine and craft spirits brands, the Prisoner Wine Company and our Mi Campo tequila brand, also outperformed their corresponding luxury wine and higher-end spirits category segments. Notably, all of the individual brands just referenced also delivered solid depletion growth rates in the second quarter. Our wine and spirits business also continues to advance the renovation of its mainstream brands to address the headwinds the corresponding category segments have faced over several recent quarters. While there is certainly more work to be done here, in U.S. track channels, the year-over-year dollar sales decline for Woodbridge improved relative to the first quarter, and Svetka's overall share remained relatively stable when compared to the first quarter. All of that said, our wine and spirits business continued to face lower demand primarily for our mainstream brands. reflecting continued consumer-led premiumization trends noted in prior occasions, which in turn affected overall performance in the second quarter. Nevertheless, we are reiterating guidance for the full year and continue to expect fiscal 24 organic net sales to remain relatively stable and operating income growth of 2% to 4%. As we shared when we provided our outlook for fiscal 24, We see the year as a tale of two halves for the wine and spirits business, with 55% of planned volume is being delivered in the second half and operating performance projected to accelerate over the rest of the year due to other key factors. We expect to benefit from the more proactive quarterly shipment and depletion rebalancing actions we have undertaken this year versus our single downward shipment adjustment in Q4 of last year. We also anticipate an uplift in our direct-to-consumer channels and improved mix from incremental Aspera shipments in line with seasonality, as well as benefits from recent price increases. Ultimately, we also expect to see operating margins meaningfully accelerate due to the improved sales trends just described and the resulting positive operating leverage. Before I conclude, it would be remiss not to highlight our consistent execution against our capital allocation priorities. We continue to make progress towards our reduced net leverage ratio of approximately three times, with a 400 basis point reduction since the increase resulting from the financing of our Class B common stock reclassification last November. Importantly, our proactive management of the incremental debt from the reclassification now puts us on track to deliver lower interest expense than initially anticipated for fiscal 24. And in turn, we now anticipate higher reported and comparable earnings per share, excluding canopy, in the ranges of $960 to $980 and $12 to $1220, respectively, for the full year. In terms of cash returns to our shareholders, Our dividend payout ratio for the second quarter remained aligned with our 30% target, and while we did not conduct any additional share of our purchases in Q2, we have executed $35 million year-to-date in line with our goal to at least offset dilution. Lastly, our brewery expansions are progressing as planned, including Veracruz, and we continue to develop and bring these online with the flexibility enabled by our modular approach. Before I conclude, I also want to again take an opportunity during our second quarter call to highlight the upcoming release of our annual ESG Impact Report in a few weeks. This report seeks to provide a comprehensive review of our strategy, initiatives, targets, and performance to address pressing environmental and societal needs that are important to our business, consumers, communities, employees, and broader stakeholders. In particular, as noted in our last two calls, we have already surpassed our target of restoring 1.1 billion gallons of withdrawals from local watersheds and are looking forward to showcasing the initiatives in our beer business that drove most of this achievement and to share more details on our new target in our upcoming ESG impact report. I invite all of you to spend some time reviewing this report when it is released which will be available through our company website. In closing, I'd like to leave you with four main takeaways from this quarter. First, our beer business continues to outperform the industry and the acceleration of its performance since the beginning of the year has given us confidence to shift our outlook for fiscal 24 to the higher end of our initial net sales and operating income growth expectations. And just as critical, we remain equally confident about the long-term runway for our higher-end brand portfolio. Number two, the benefits of our wine and spirits strategy continue to take hold. We expect the net sales growth and operating income growth of that business to ramp up through the remainder of fiscal 24. And as we look to the coming years, we anticipate our wine and spirits business to further gain momentum and achieve stronger results. Number three, we are persistently delivering on our capital allocation priorities, maintaining discipline and balance to yield value and returns, and we remain committed to building on the consistent track record we've established with these priorities over the past few years. And finally, number four, we are excited to be sharing more of these important topics with you at our upcoming Investor Day in four weeks' time. And with that, I'd now like to turn the call over to Garth, who will review our financial results for Q2 in more detail. Garth?