Constellation Brands Inc (STZ) — Q4 2025 Earnings Call Transcript

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%. Our operating income growth rate for fiscal '26 is expected to be between 0% to 2% percent and for fiscal '27 to '28 we expect operating margins to be approximately 39% to 40%. Please note that 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. We encourage you to refer to the news release and Constellation’s 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 US 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 US government yesterday which will particularly impact the Wine and 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, 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. 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, Veracruz, and modular additions at our existing facilities in Mexico. 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. Garth and I will be happy to take your questions.

Hi, great. Good morning and thanks a lot for the question. I wanted to know if you could comment more specifically on tariffs. Is the Beer Business currently USMCA certified so we can get some visibility on what is baked in terms of tariffs with regard to Mexico? And also, what else is baked in terms of aluminum cans and so on? So more visibility there would be really helpful. And then, I was also just curious on the longer-term forecast around beer and the notion of socioeconomic non-structural dynamics. But how are you thinking about beer industry growth over this projection timeline? Thanks.

Sure, why don't I start with the first part of the question? We have been USMCA compliant since it was implemented several years ago and remain USMCA compliant today.

In addition to that, Lauren, the guidance that we provided does include the impact for all tariffs announced by the US government on April 2nd and by the Canadian government on March 4th. For our Beer Business, this includes the impact on our aluminum cans. And for our Wine Business, this includes the impact for our brands coming out of New Zealand and Italy into the U.S. and for our brands from the U.S. into Canada.

Relative to the longer-range perspective on beer, there's been obviously a lot of what we see as near-term headwinds, but we think that those over time, particularly as the Hispanic consumer who's been particularly challenged, gets back to more sort of normal operating procedure.

Yeah, thank you. Good morning, everyone. Bill, maybe if I could just kind of piggyback off Lauren's question on the long-term beer outlook. I get the fact that things are really kind of choppy right now, but the cut in the guide just kind of over the next couple of years seemed a bit extreme relative to what you guys have been doing, even with the slowing down that we've been seeing, that I think we can all agree some of it is very temporary. So when I speak to the trade, it's pretty clear nothing has really changed on an underlying basis with the brands, the momentum, kind of how retailers are looking to space your portfolio in a bigger sense, greater manner. So just wanted to kind of get your philosophy on the range of being down, this up 2% to 4%, which is versus the 7% to 9% and kind of how you're thinking about that. I mean, are you just kind of assuming things to stay the way they are? And if there's upside, great. So, any context on that would be really, really helpful.

Sure. Well, let's start with the most important thing, Nik. And today's Nik's birthday, so, happy birthday, Nik. Now getting on to the main point. Most important thing, as we look at it, relative to the medium term, is our brand health. Fortunately, all of our brand health metrics remain extremely strong. We're very focused on what we can control, and that's distribution. It's focused innovation. It's making sure that our execution is top-notch. You noted we gained over 10% in share of space in the resets that occurred last year, so that remains a positive factor. It's very difficult to know exactly how long some of these socioeconomic issues are going to continue. Certainly, we know that the Hispanic consumer is particularly concerned about a number of issues, and we would certainly expect some improvement as those consumers become more comfortable and less concerned about the many issues that follow them. We don't have an exact answer to when that is going to moderate. And I think it's important to note that the guidance that we have provided reflects the fact that there are a lot of unknowns today, including things like tariffs, but also the impact that we're seeing with the Hispanic consumer. Until we get a more definitive answer to some of those questions, it's a tough answer to give. Fortunately, that consumer, the Hispanic consumer, continues to show extraordinary loyalty to our brands. And over the long-term, that will moderate and continue to allow us to gain share as we have for the last several years.

And, Nik, let me just add a couple of the actual brand health stats that Bill referenced. We've actually seen some pretty significant increases in aided awareness and consideration from Modelo, Corona, and Pacifico, which is in line with what we would expect from the media investment that we put in place this last year. All brands are holding steady on measures of popularity across all adults, Hispanic and Gen Z. Pacifico is up statistically significantly in California and all our brands are holding steady on the other metrics that we track, including is this a brand I love, is it a brand everyone likes, is it a good value, is it a brand with heritage and net favorability.

Thank you. Good morning. I wanted to follow up on your medium-term forecast. What growth or decline are you expecting for the beer category over the next few years? Additionally, could you discuss the factors that will enable you to maintain your beer margins of 39% to 40% despite a significant anticipated slowdown in volume and potential tariff risks? You mentioned cost-cutting measures, so could you provide more details and possibly quantify those? Thank you.

I think Slide 18 is going to help you on some of those broad answers, but our view is, over the course of the medium-term, the beer industry overall will likely go back to what it has done over the last several years, which is roughly flat to down 2%, somewhere in that range. And as we've said on prior calls, we've seen a significant delta between whatever the beer industry is and our performance against it, where we have gained significant share. We expect that that overall approach is going to continue and that we'll get back to a more normal trajectory into the medium-term. As I spoke on a couple of the prior questions, how quickly that comes around will largely depend on what consumer sentiment is as we move forward.

Yeah, and then, Bonnie, on margins, I apologize, this is probably a bit of a boring story, because I think we've said it a few times before, nothing's really changed. First of all, we're going to manage our footprint in the modular fashion that we've referenced previously. So we're going to limit the impact of depreciation and overhead absorption issues. In addition to that, we'll have incremental volume growth. We'll maintain our 1% to 2% pricing algorithm. And certainly, we'll continue with our cost savings initiatives. Obviously, those tailwinds will be offset on a year-to-year basis by inflation and tariffs. But net-net, when we put all that together, we think we can continue to deliver best-in-class margins at 39% to 40%.

Great. Thank you very much. I just want to make sure I get this as crystal clear as possible. I'm wondering if you can just kind of go through again how you're thinking about free cash flow deployment and given the fact that you've shrunk the Wine and Spirits Business or repositioned it and given the fact that at least over the next couple years, you expect less growth from the beer side of the business, you're reducing CapEx. Are you today, and kind of going forward, more open to larger acquisitions? Are you spending more time on acquisitions, given the increased cash flow? So, I'd love to get your thoughts on that. I know you've re-upped the authorization on the share buyback. Tied to that, is that a strong commitment that you will buy back? I think it was $4 billion worth of stock over the next three years, just trying to get a sense of the priorities there and what is kind of guidance versus actual commitments along those lines? Thank you.

Thank you for the question, Robert. This response will be interesting because there's a lot of consistency with our previous statements, and I'm excited about our plans. As we mentioned, through fiscal year 2028, we expect to generate $9 billion in operating cash flow and $6 billion in free cash flow. Our priorities for capital allocation remain unchanged. We are focused on maintaining three times leverage, and we're currently slightly below that. We are dedicated to returning capital to shareholders through dividends and will keep our dividend payout at approximately 30% going forward. You mentioned the new authorization for $4 billion in share repurchases from our board, which is very exciting. This authorization reflects our disciplined approach to capital allocation and specifically share purchases, and it indicates that we believe our stock is undervalued. We will proceed with this share authorization as we did last fiscal year, maintaining discipline on a quarterly basis while also being ready to act opportunistically if there are price dislocations. Regarding capital allocation, we will continue investing in our Beer Business, committing $2 billion over the next few years. M&A will remain our last priority, focusing mainly on smaller plug-in opportunities.

Hi, good morning, everyone. So, Garth, can you just talk about the main drivers and considerations for gross margins going into fiscal '26? I fully appreciate that you had a lot of detail in the slides, but I'm really trying to parse out the impact of tariffs on this model, whether that's just the aluminum cans relative to everything else. You also perhaps have a quite a notable currency tailwind in fiscal '26 that may not help you in go-forward years. And so I'm really just trying to understand the puts and takes, specifically the impact of tariffs relative to everything else on the model in fiscal '26 and whether there are some nuances like currency that won't repeat, so that we can have a better idea of how to layer this in going into fiscal '27 and fiscal '28?

Yeah, so look, let me do my best there, Chris. And if we need to follow up, we can follow up. The guidance that we provided yesterday includes the impact of tariffs for our Beer Business. That is the impact on aluminum cans. As it relates to currency, as you know, we've talked about this multiple times, that we have a multi-year layered approach to how we manage our currency. As we entered in FY '26, we're above 70% hedged, and we've seen some weakness in the U.S. peso right here. We've taken opportunities to layer in some incremental hedges both for this year and future years. So as always, we try to manage that on a year-to-year basis so that the impact isn't that material from a year-to-year perspective. We try to smooth that as best we can.

Thank you, guys. I appreciate all the incremental color that was provided in the prepared remarks in the presentation. Two questions for me. You called out a tough socioeconomic environment in your prepared remarks. Can you explain exactly what you're assuming in terms of that socioeconomic environment for the next three years? Are you assuming the current situation remains status quo or are you making some improvement in the back of that? And then secondly, on the weak depletion numbers and especially Modelo, appreciate the commentary that you provided. Could you pull apart the factors onto what's driving that, maybe what has changed in a little more detail? I don't know if a rank order of magnitude or trying to quantify these in any way possible, and maybe you have any incremental consumer insight on consumer type, pack type, channel, any incremental color would be helpful. Thank you.

Sure. So, let's talk first about the Hispanic consumer because I think this is an important element. As you would expect, we do a fair amount of research around this consumer given that they represent roughly 50% of our overall Beer Business. Many consumers in the Hispanic community are concerned right now. Two-thirds of them are concerned about higher prices on things like food, gas, and other essentials. Over half are concerned relative to immigration issues and how those impact. A number of them are concerned about job losses in industries that have a high Latino employment base. And what does that do? That has tended to mean that the consumer has pulled back on spending on a number of categories. The single biggest one, interestingly, is restaurants. But many other consumer goods, clothing, home choice, things to do, and travel. Beer is quite a ways down the list, but it's certainly on the list because aspects such as social gatherings, an area where the Hispanic consumer often consumes beer, are declining today as part of these overarching concerns. Therefore, all of that has had an impact on our business. Modelo is over 50% Hispanic in terms of its demographic base. This decline, in efforts to go to restaurants, to have social gatherings, is softening in the more recent term. It's going to be key to watch how that impact continues or doesn't continue as we go forward. Net-net, it's non-structural. Our brands and our brand health continue to be top-notch. We continue to focus on winning the shelf and execution, along with bringing interesting innovation to the table that allows us to continue to outperform the overall category. But as you would expect, we want to see some improvement in consumer brand health before we can accurately project how long some of these challenges are going to last.

Yeah, just on some of the macro data points. I'll give you how we're thinking about that for the forecast period that we provided details on last night. We're not expecting any material improvement over this forecast period. Some of the macro trends that we're seeing and that we're tracking are unemployment, which has started to stabilize across the board. Meanwhile, we have seen weakness in those job sectors that have a higher impact on beer consumption. Year-over-year real disposable personal income reached a two-year low in January and stayed low in February. Consumer sentiment reached a 2.5-year low in March, and long-term expectations from consumers isn't expected to change anytime soon. We've seen inflation expectations for inflation decrease more slowly than we initially expected. The outlook for GDP growth now appears to be a little bit more muted than it was previously. So, we're not expecting any significant improvements in that. As we go through calendar year 2025, we may see some of that moderate a bit and into '26, so perhaps some marginal improvement. But for the forecast period, we are not expecting any material improvement in the macroeconomic conditions.

Thanks, operator, and good morning, everyone. So I was hoping to talk more in the near term and just kind of get some perspective in terms of what's happening in terms of beer top line growth. Currently, obviously, a challenging exit rate and the guidance does seem to imply some improvement from that exit rate. Can you maybe just help us frame how we should be thinking about the guidance from here? Any considerations that we should consider as it relates to 1Q? And then just any thoughts in terms of what we should anticipate price versus volume? Thanks.

Well, I think if you'll recall from last year, the strongest quarter that we had, and frankly, that the industry had, was our fiscal Q1. So, while we don’t make any habit of giving quarterly guidance, certainly, the biggest overlap that we have is in this very first quarter as the business started to soften for the industry as well as for us as you progressed through the back half of last year. When you combine that with some of the socioeconomic climate issues that I've already referred to, I think you're going to see some volatility as the year goes on. Again, the key thing for us, I know I'm repeating myself, but it's important to recognize that our brand health remains best-in-class. In the long run, that will continue to pay dividends for us as consumers get back to a normalized behavioral pattern.

Good morning. So some people, including the Teamsters and maybe one of the mega brewers, they seem to be trying to drive a wedge between American beer and imported beer. Are they having any success with that in the eyes of consumers? And how much influence do you think those types of groups have over alcohol tariff policies?

It’s an interesting question, Bill. Tough to answer some of that question. What I would say is one of the things we are proud of as a company is our 80 years as an American company. Our ownership is entirely in this country, although we make most of our beer in Mexico because we have Mexican heritage brands. We spend roughly $1 billion a year in the United States market, supporting our brands. We have many of our grains and our barley and corn grown in the Mountain West of the United States for inputs. When the overall Teamsters take a very hard look, we are very supportive of the Teamsters. I think we have brought more jobs to this marketplace than any other competitor has because of the growth of our business over time through our distributor network. As people take a hard look at what our company is and how we have performed in the marketplace, they will recognize that we have done an exceptional job of building U.S. jobs as we've also built our business in Mexico to support those U.S. jobs.

Hi, good morning. Thank you for addressing the questions. I appreciate the detailed guidance. Clearly, the environment is quite dynamic. As you reflect on the assumptions you've made for the next three years, where do you see the greatest risks to those assumptions, and where might we later think that some of those estimates were a bit conservative?

Yeah, I think the single biggest risk that we have is where the consumer is and how long their concerns last. If we had a crystal ball on that, it'd be a lot easier to make some projections because as the consumer feels better about things, that will help not only our business but the overall category. Believe me, we'd like to see a healthy category. That would be to everyone in our industry's benefit. We certainly always like to see the industry succeed as we succeed. So that's the biggest variable that I think is out there is when does the consumer come around. We're going to stay crystal-clear focused on the variables that we can control, as I've talked about earlier today. But consumer sentiment and the consumers' desire to get back out and shop and be comfortable in the socioeconomic environment is probably the single biggest variable that’s tough to predict.

Great. Thanks very much for the question. I just had a housekeeping item on the Wine Business. So, the $41 million impact that you called out in your commentary, can you provide some detail on when you expect that to hit the operating income? Is that going to be in the first quarter of 2026? I guess that's my first question. Just any color on the cadence? And then as we think about the cost savings, I think $100 million of the $200 million is coming out of wine. Is that going to be a more pronounced benefit to the operating income booking? Like if we had to look to 2027 or 2028, is that going to be more of a benefit when we get to 2027? So, again, any color on the cadence there would be helpful. Thank you.

Yeah. So, the $41 million that you referenced that was called out in the prepared materials, that will happen throughout the year. It won't be any one big quarter where that hits but throughout the year. In terms of the cost savings, we called this out in our materials, right? So it's about $100 million in total for Wine and Spirits. We're expecting about $55 million in fiscal '26. The majority of the actions that we will take to achieve that $100 million savings will occur in FY '26. It's just you won't get the full run rate of that until you move into FY '27 and then maybe a little bit into FY '28.

Hey, good morning. So, clearly, a pretty big revision in long-term beer sales growth from the 7% to 9% range to 2% to 4% in fiscal '27 and '28. Can you just give us a little more detail on how much of that is just related to the external environment and more conservatism on macros? How much of it is pressure points maybe that are more durable on the beer category, health and wellness, demographics, et cetera? And then a third bucket of market share opportunity for STZ? Just give us a sense of conceptually how much of that falls into each bucket? And I realize this is like the eighth version of this question you've got on the call. But I guess the point is, we're kind of hearing from you guys, your tone is that the beer depletion slowdown, it's more driven by short-term factors. Obviously, we understand the difficult macro environment. At the same time, you're making pretty large revisions to the beer sales growth post fiscal '26, which should be significantly macro depressed based on what we're seeing. So I'm just trying to sort of bridge those two points and how you guys think about that conceptually?

Yes, it certainly does, Dara. We have a short-term challenge regarding consumer sentiment, and it's hard to gauge how long this will persist. Looking at the current fiscal year, we anticipate it could have a notable impact throughout. The key question is when consumer sentiment will improve, which is difficult to predict. However, we are dealing with a short-term situation rather than a brand health issue. For instance, when we analyze brand health, Pacifico has increased by 16% last year and continues to attract consumer demand. I’ve referred to it in earlier years as an early-stage Modelo because it mirrors the growth pattern Modelo experienced about a decade ago. The main point is we have strength among our brands, and we are introducing new innovations that will create new consumer opportunities and engage new consumers with our brands. We will keep focusing on the aspects we can control. Predicting some socioeconomic factors that will influence this situation is challenging. We believe that the duration may be longer than we initially expected. This uncertainty is reflected in the guidance we provided.

If I can just follow up on that, Bill. So many times we're hearing sort of non-structural, non-structural, and there's a lot of macro stuff, of course. But, at the same time, the long-term algorithm has changed quite a bit. It feels like maybe some of it is structural and that could be a law of large numbers. Is there maybe a revision in expectations for Hispanic population growth in the United States? Just, is there anything maybe bigger in there that we should be aware of as part of the calculus?

No, I don't think so. When considering various factors, such as our awareness levels compared to some competitors and our shelf positions against larger rivals, we still have significant growth potential. There is ample opportunity for expansion, particularly with Modelo's efforts to reach the non-Hispanic community, which we have been actively investing in for several years. We have increased our marketing budget, particularly in the latter half of last year, even as consumer spending tightened. We are already seeing positive returns on this investment. We believe there are still numerous opportunities for our business moving forward, although many of the current challenges stem from socioeconomic issues that we expect will ease over time. The main question is when that will happen, which is challenging to predict.

Good morning, everyone. Bill, Garth, it seems you have gathered solid data to inform the new guidance. It would be beneficial if you could discuss the trends in beer volumes in predominantly Hispanic areas compared to the overall market, especially in the latter part of fiscal Q4. I understand the loyalty and demographic advantages of this group from my experience with Grupo Modelo when it was publicly traded. That strength certainly transitions to your role as an importer. Can you also share how this information has influenced your decision to lower long-term expectations? You invested nearly 9% of sales in the Beer Business for advertising and promotions, totaling around $1 billion, as you mentioned. With the guidance of 8.5% for fiscal '26 in mind, how should we interpret the dynamics considering your existing distribution gains and the expected additional 10% growth? Thank you.

Sure. So, let's try to take that in some order here. Relative to Hispanic consumer behavior, one of the things we've seen both factually and anecdotally is that there has been some channel shifts in what that consumer is doing. Historically, you saw overweighting to the stores that were largely Hispanic consumer based and C-stores. We've seen shifts into broader chain-based accounts that are larger accounts. I think that reflects some of the concerns that we've talked about regarding the Hispanic consumer across their broader life and lifestyle. Relative to the 8.5%, we continue to invest that amount year-on-year. We continue to see very strong returns for the spend that we put against our Beer Business. We are going to continue to test and review our marketing on a quarter-by-quarter basis.

Bill, if you don't mind, I’ll just explain a couple more on the marketing spend. As Bill just noted, we don't compromise on our marketing spend. It's a very disciplined approach. We've obtained a lot of efficiencies with our media agencies in terms of effectiveness and spend. We will continue to target being the number one and number two share of voice with Modelo and Corona. We’ve increased our sponsorship with March Madness, with Soccer, with Major League Baseball, and with college football. So we're not shortchanging by any means the marketing investment behind our beer brands.

Yes. Hello. One interpretation of your three-year guidance and its long-term implication is that Corona Extra is the Bud Light of 2008. Just a declining aging brand with volume declines that the rest of the portfolio might not be able to offset. Can you make the case for Corona Extra as you see it evolving? I remember that in 2008, you were able to restabilize Corona actually where Bud Light couldn't. How are you planning to stabilize it now and return that to growth? Might that be one of the structural hurdles that you need to clear here that Kaumil was maybe alluding to in an earlier question?

So, regarding Corona, first, think about it in terms of the brand family. Corona Familiar is one of our key growth products in today's market. We have launched Corona Sunbrew this year, and we are optimistic about its early performance. It has strong brand recognition and is the most loved brand among consumers in the United States. This indicates that Corona still has a solid consumer base and franchise. Notably, it offers one of our best returns on our advertising investment, which is very encouraging. We plan to increase our advertising spending this fiscal year compared to previous years. Therefore, we remain positive about Corona and see it as an essential element of our brand strategy moving forward.

Hi, good morning, everyone. I wanted to revisit the question about beer margins that was raised earlier. Just for clarification, on Slide 14, you indicate that you are anticipating a cost of goods sold inflation in the low to mid-single digits through fiscal '28, accounting for cost savings. This means that you are still facing net cost inflation. Although you are mitigating some of the additional capacity, depreciation is still increasing. The volume environment appears to be weaker as well. I assume that there is somewhat less fixed cost leverage, although it remains positive. Can you explain what the offsets are for these challenges to beer margins that enable you to maintain them at the same level? Thank you.

No. I mean, look, as we said earlier, right, there will be volume increases, which will help. There will be pricing in that 1% to 2%, which will help. Those cost initiatives will help mitigate that cost inflation and we'll manage depreciation. So that's where we feel comfortable, saying we'll be in 39% to 40% operating margins. It's all of that put together.

Hey. Thanks, operator, and good morning, everyone. First, Bill, Garth, thank you for putting a stake in the ground. This is not an easy environment to try to forget about forecasting next month, let alone the next few years. So whether it's accurate or not, it's just that you put a stake in the ground, you gave us some detail, it's really helpful. So, thank you. My question is more around, as we're thinking about margins in beer and for the whole enterprise actually, just structurally, is the $200 million in savings that we talked about yesterday, is most of that related to the divestiture of the parts of the Wine Business and kind of reducing some of the stranded overhead? And I guess what's really underneath my question is, as things evolve, should we expect there could be some opportunities to drive more efficiency, especially as hopefully, the landscape becomes more clear?

Yeah, Bryan, thanks for the question. I think I understood it. The $200 million of annualized savings, of that, about $100 million is associated with the wine business. That comes out after the divestiture. The remainder of that really is across our corporate functions as well as some in beer. It is a reset as we try to make sure that we've got the most capable organization with the best skills and resources behind it to deliver on our strategic priorities going forward. We have a pretty good history around discipline of cost management. And to the extent we identify areas over and above what we shared yesterday, we absolutely would execute on those. But the amount of cost we're taking out is a pretty aggressive yet very achievable amount and most of which we execute on this year.

Let me pile on that for once. Bryan, one of the things Garth was just touching on is important. First of all, we have a superb supply chain capability within our business, and we have already shown our colors around that. As we create more efficiencies over time, we invest that money behind our business to help grow the future. That's an approach we have taken for many, many years now, and it's one we'll continue to take.

Good morning. Bill, Garth, thanks for the question. Maybe a quick one for each of you actually. Bill, similar to how you've discussed a couple of times the factors influencing demand on beer, I'd love any analogous comments you might have on the Wine and Spirits side and just how you see the various factors stacking up to inform the flat to 3% outlook that you have on the portfolio you are planning to retain. Then, Garth, maybe you could expand a little bit more detail, if possible, on just how recent results and the revised outlook on beer is influencing how you're approaching the build-out in Veracruz or any of the modular additions at the existing facilities? Any changes that are worth highlighting? Thank you.

Sure. Starting with wine, I'll let Garth answer the second half of the question. Our thinking around the Wine Business is similar to what we've done in beer, which is this creates a Wine and Spirits Business going forward that plays at the higher end of the business. That ties in with the long-term premiumization trend that you see across all alcohol beverage. In the fourth quarter of last year, the retained business in Wine and Spirits grew 4% in depletions, which gives us confidence and excitement about what the future can look like for a much narrower but a much more focused higher-end portfolio for our Wine Business. That business has continued to be much stronger than what we've seen in other sectors of the Wine Business, which is why we're going to spend our time and energy on that subsegment of the overall wine category.

In terms of the modular approach and changes in our capacity strategy, there's nothing more to share beyond what we provided earlier today. We will keep managing our footprint responsibly in line with our volume expectations. As indicated, we have lowered our capacity expectations through FY '28 in the materials shared last night. Specifically regarding Veracruz, we are on track to open that brewery, which will be significant for us as we consider its role in the overall portfolio. However, we will be cautious and only bring on additional capacity when necessary.

Thank you. Good morning, everyone. I want to revisit the investment levels in the Beer Business from a different perspective. Garth, you mentioned that the current levels are satisfactory. However, the 8.5% we've seen is below the 10% levels from fiscal '20 and '21, and typically, you operate in the 9% to 10% range. Given the volatility in the environment, I wanted to ask if there was any consideration to increase investment, even if it slightly impacts margins, to boost top-line growth, which is common in consumer packaged goods. Additionally, for both of you, should investors view this as a shift in Constellation's approach, moving away from prioritizing top-line growth towards focusing more on margin preservation and cash flow, based on your current business experiences? While I understand that you might argue it's not an either/or situation, I would appreciate hearing your thoughts on how you are balancing these priorities.

So just on the marketing investment. We feel, as I said earlier, and as Bill said, we feel really comfortable around our marketing investment. As we laid out at our Investor Day, our target was to be about 9%. And that's where we were in FY '25. We're a little bit below that in FY '26 in terms of the forecast. But we don't limit that. When we talk to our marketing teams, we ask them what they need, and they tell us what they need. This reflects what our team thinks it needs to drive the type of performance that's included in our outlook. We invested significantly more money in marketing to drive and support our brands last year. So, that discipline won’t change. While the percentage is coming down, we've become significantly more efficient in the way that we buy media and manage our marketing spend.

And relative to your comment about whether our approach to things has changed? The answer is no. Look, six out of the last eight years, we have been the number one Circana large company CPG company in terms of growth, which included last calendar year despite the challenges we faced. Despite that, we believe we'll continue to see both top-line growth and maintain a strong margin structure of 39% to 40%, as Garth outlined. Our expectation around that hasn't changed. We think both are important, and we're going to do our best to achieve both.

Hey, thanks. We're all trying to figure out what the exact tariff impact is on your can costs. I understand it might be sensitive information. But I'm just trying to figure out if I have the building blocks right. If you spend like $900 million a year on aluminum cans and it's a 25% tariff, do I just put those two numbers together? Or am I too high on that number?

I would say take a look at the information we provided in the guidance we issued last night. If you look at the top and bottom-line growth rates, you can infer the impact.

Well, there are a lot of other assumptions in those impacts. What are the other assumptions? Would it be productivity?

Robert, on an absolute basis, as disclosed in all the materials, it includes productivity, cost savings, inflationary pressures, and so forth. But again, that's all baked into our margin assumptions. Tariffs are as well. All disclosures have been made available.

Thank you. Good morning. Just wanted to come back to just the capacity approach, and I recognize you've tried to adjust to match what you expect to need. But maybe help us understand the mix a little bit. It sounds like you're still adding modules besides Veracruz. Are we right to assume that the flexibility you have to ship by sea from Veracruz should allow for some potential savings? If so, what's the thinking to add at all your locations as opposed to just push there? Just would love to understand that a little bit better.

When we look at our brewery footprint, several factors are taken into consideration. Size and scale of the brewery, capabilities of that brewery to produce the entirety of our portfolio, or whether it will be a more specialized brewery running large packaging lines. We also look at how we can optimize logistics costs in terms of getting products to market cost-effectively. Specifically to Veracruz, while it is further south, keep in mind that in the overall footprint, it will represent about 3 million hectoliters of the overall 55 million hectoliters. It’s a relatively small percentage of our total footprint. We are still reviewing our logistics options to manage costs effectively there. From a capability standpoint, that brewery is going to run along production lines of high-volume SKUs and minimize the cost while offsetting any incremental logistics costs.