Constellation Brands, Inc.

Hello, and welcome to the Constellation Brands Q2 Fiscal Year 2025 Earnings Call. At this time, all participants are in listen-only mode. 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 be placed into question queue at any time by pressing star one on your telephone keypad, and we ask you to please limit yourselves to one question. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Senior Vice President, Investor Relations, Joe Suarez. Please go ahead, Joe.

Thank you, Kevin. Good morning, all, and welcome to Constellation Brands Q2 Fiscal 25 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.seabrands.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 also 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, which will help us to end our call on time. Thanks in advance, and now here is Bill.

Thanks, Joe, and welcome to our Q2 fiscal 25 earnings call. As usual, I'd like to start with a few key highlights for the quarter. First, while the current macroeconomic backdrop weighed on demand for beverage alcohol and more broadly across consumer packaged goods, we continued. to deliver strong performance in the marketplace driven by our consumer-centric strategy and thoughtful approach to brand building. At a total company level, Insurcana tracked channels over the 12 weeks ending September 1st. We held the number one spot for both dollar sales growth and share gains within all beverage alcohol. And more notably, we once again achieved dollar sales growth outpacing the total CPG sector as we continued to build on our track record of over a decade as a CPG growth leader. Second, our beer business remained the clear winner across the total beverage industry, having significantly outperformed in dollar sales growth and, of course, maintained its leading share-gaining position in the U.S. beer category. Third, and continuing with our beer business, we delivered another quarter of significant margin expansion supported by disciplined operational and financial management. Importantly, our cost savings and operational efficiency initiatives are delivering significant incremental benefits for our beer business beyond what we had anticipated at the start of fiscal 25, which are now enabling incremental marketing investments in our largest beer brands as of Q3. Fourth, Our relentless focus on winning in the marketplace, delivering top-tier growth, and driving efficiencies supported another quarter of double-digit increase in comparable EPS in line with our full-year outlook. Our strong earnings performance and, in turn, significant cash generation enabled us to achieve a pivotal milestone of our capital allocation priorities, having reached a $2.9 net leverage ratio on a comparable basis in Q2, slightly below our approximate three times target. And equally important, consistent with those same priorities, we also returned nearly $250 million of cash to shareholders through share repurchases in Q2, bringing our total year-to-date cash returns through repurchases to approximately $450 million, while continuing to pay our dividend and advance our brewery investments in our beer business. All in, as we noted a few weeks ago, while ongoing macroeconomic headwinds, particularly rising employment, have led to a recent deceleration in the rate of growth of consumer demand for our products, we remain on track to deliver another solid fiscal year and continue to create value for our shareholders. With that, let's turn more fully to our beer business performance. During the second quarter of fiscal 25, our beer business continued to deliver strong financial performance with net sales and operating income growth of nearly 6% and 13% respectively. As noted earlier, these increases were primarily supported by solid volume growth and carryover pricing from last fall, as well as disciplined cost management and operational efficiencies. our beer business grew shipments by 4.6% in Q2, while depletions were up 2.4, which includes the impact of one less selling day. It is important to reinforce that the Q2 performance of our beer business was accounted for in the updated expectations we shared for fiscal 25 four weeks ago. Now honing in on the performance of our largest brands, Modelo Especial grew depletions by nearly 5% and upheld its position as the top share gainer, further extending its lead as the number one beer brand in U.S. track channels. Corona Extra depletions declined approximately 3%. However, it remained a top five beer brand in dollar sales in the U.S. and continued to gain dollar share in the category. Pacifico delivered another quarter of remarkable depletion growth of nearly 23%, and remained the number four dollar share gainer across the total beer category. Our Modelo Cholata brands delivered an increase of approximately 2% in depletions, and our Limani Sal flavor remained a top 15 overall dollar share gainer in the category. As noted earlier, our beer business also maintained the momentum of its significant operating leverage gains, driving 2.7 percentage points of operating margin expansion year over year. As mentioned earlier, we are pleased to be deploying incremental marketing investments across our largest beer brands in the second half of fiscal 25 as our cost savings and efficiency initiatives have delivered results above our initial expectations. Looking ahead more broadly, Consistent with our recent outlook update, we continue to expect our beer business to deliver net sales growth of 6% to 8%, operating income growth of 11% to 12%, and an operating margin of approximately 39% in fiscal 25. Moving on to wine and spirits. As noted a few weeks ago in our full-year guidance update, we continue to face incremental category headwinds in our wine and spirits business. particularly in the lower priced segments. This affected both the performance of Wine and Spirits in this latest quarter and our fiscal 25 outlook for that business. In Q2, the impact of these category headwinds largely drove Wine and Spirits shipments down 9.8% year-on-year, while in turn was the primary driver of the respective 12% and 13% declines in net sales and operating income for that business. Against that backdrop, The business remains focused on continuing to advance the operational and commercial execution initiatives identified at the end of our last fiscal year to improve the performance of our largest wine and spirits brands. Encouragingly, we saw some green shoots in Q2 across our largest higher-end wine brands, Kim Crawford, Naomi, The Prisoner. As tactical pricing and marketing support actions, we are taking and select markets began to drive better consumer takeaway trends. So we plan to continue these actions through the remainder of the year to drive further improvements in this select group of our most scaled higher-end offerings, which ultimately underpins the sequential improvement we expect in our wine and spirits business over the second half of fiscal 25 per our updated outlook. Also notably, our craft spirits portfolio, albeit smaller in scale, continues to be a positive driver for the business, delivering strong depletion volume growth as well as high single-digit dollar sales growth in Sercana U.S. tract channels, significantly outperforming the low single-digit growth rate of the higher-end spirits segment. Looking ahead for our recent updated fiscal 25 outlook, we expect the wine and spirits business to ultimately deliver for the full year, net sales and operating income declines of 4% to 6% and 16% to 18% respectively. Lastly, we usually take this opportunity in our Q2 call to bring your attention to the upcoming release of our annual ESG Impact Report every October. That said, going forward, we'll be publishing this report under the same timeline as our other fiscal year-end materials. This shift in timing will help ensure better alignment our most recent and relevant full financial year updates and these related to our efforts to address pressing environmental and societal needs that are important to our business and our stakeholders ahead of our annual meeting. We look forward to sharing our progress and updated targets in a few quarters. So, in closing, while our sector is facing less favorable consumer demand due to macroeconomic headwinds, we delivered another quarter of strong financial results underpinned by the continued solid net sales growth and significant margin expansion of our beer business, ultimately achieving our second quarter double-digit comparable EPS growth in line with our full fiscal year expectations. In addition, we continue to build on our leadership position within consumer packaged goods and the total beverage industry, outperforming and dollar sales growth across Circana track channels. And we remain steadfast in delivering against our disciplined and balanced capital allocation priorities, achieving a two-times net leverage ratio on a comparable basis, slightly below our stated approximately three-times target, while also returning nearly $250 million to shareholders through share purchases in Q2, as well as continuing to pay our dividend and advance our brewery capacity investments. And with that, I will turn the call over to Garth, who will provide more details on our financial results and outlook. Garth?