Constellation Brands, Inc.

Greetings, and welcome to the Constellation Brands Q4 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, and we ask that you please limit yourselves to one question, then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Joseph Suarez, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Kevin. Good morning, all, and welcome to Constellation Brands Q4 and full-year fiscal 25 conference call. I'm here this morning with Bill Newlands, our CEO, and Garth Hankinson, our CFO. We trust that you had the opportunity to review the news release, CEO and CFO commentary, and accompanying slides made available yesterday evening in the Investors section of our company's website, www.cbrands.com. As we have received a couple questions regarding certain figures contained in our slides, please note that we expect our beer net sales growth rate for fiscal 26 to be between 0% to 3%, and for fiscal 27 and 28 to be 2% to 4%. And our operating income growth rate for fiscal 26 is expected to be between 0% to 2%, and for fiscal 27 to 28, we expect operating margins to be approximately 39% to 40%. On that note, as a reminder, reconciliations between the most directly comparable GAAP measures and non-GAAP financial measures discussed on this call are included in the news release and website. And we encourage you to also refer to the news release and constellations SEC filings for risk factors that may impact forward-looking statements made on this call. Before turning the call over to Bill and Garth, please keep in mind that, as usual, answers provided today will be referencing comparable results unless otherwise specified. and that any references to expectations for fiscal 26 to fiscal 28 reflect the anticipated impact of the tariffs announced by the U.S. government on April 2nd and the Canadian government on March 4th of this year, inclusive of the delay in the effectiveness of certain tariffs announced by the U.S. government yesterday, which will particularly impact the wine spirits business. Lastly, in line with prior quarters, I would ask that you limit yourselves 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 everyone to our Q4 and full-year fiscal 25 call. As usual, I will outline a few overarching highlights, but we will then move immediately to Q&A as our broader commentary was provided to you yesterday. So let's get going. In a tough socioeconomic environment, we are taking decisive actions designed to continue to support our industry-leading beer business, reset our cost base, and redefine our portfolio. More specifically, first, in fiscal 25, despite a softer consumer demand backdrop largely driven by what we believe to be non-structural socioeconomic factors, we continue to deliver enterprise net sales growth, realize substantial comparable operating margin improvement, and achieve double-digit comparable EPS growth. Second, looking ahead. While we expect these non-structural socioeconomic factors affecting consumer demand to gradually stabilize and subside, we remain focused on driving distribution gains, on launching disciplined innovation, and on deploying incremental marketing investments to support the growth of our beer business, all while continuing to deliver best-in-class operating margins. Third, in addition, we expect significant improvements in the performance of our wine and spirits business beyond fiscal 26, following the anticipated closing of the 2025 wine divestitures transaction that is primarily centered around the sale of the remaining mainstream wine brands in that portfolio, as well as the implementation of associated restructuring actions expected to yield over $200 million in net annualized cost savings across the enterprise by fiscal 28. Fourth, against that backdrop, we are targeting to deliver approximately $9 billion in operating cash flow from fiscal 26 to 28 and approximately $6 billion in free cash flow as we continue to invest primarily in the modular development of our third brewery in Veracruz and modular additions at our existing facilities in Mexico. And fifth, In line with this strong cash flow generation and having achieved our comparable net leverage ratio target in fiscal 25, we remain committed to a disciplined and balanced capital deployment framework, including our 30% dividend payout ratio and executing share repurchases against our new three-year $4 billion authorization. And with that, Garth and I will be happy to take your questions.