Greetings and welcome to Constellation Brands Fiscal Year 2026 Fourth Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Blair Venema, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Donna. Good morning, all, and welcome to Consolation Brand's Q4 and full-year Fiscal 26 conference call. I'm joined this morning by Bill Newlands, our CEO, and Garth Hankinson, our CFO. I'm also pleased to welcome our incoming CEO, Nicholas Fink, who is joining us at the start of today's call to share a few remarks. Following Nick, Bill will briefly review the fiscal year, after which we will turn it over to your questions for Bill and Garth. Before we proceed, we trust you had the opportunity to review the news release and CEO-CFO commentary made available in the Investors section of our company's website, www.cbrands.com. On that note, as a reminder, reconciliations between the most directly comparable GAAP measure and any 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 Constellation's SEC filings for risk factors that may impact forward-looking statements made on this call. Before turning it over to Bill to kick things off, please keep in mind that, as usual, answers provided today will be referencing comparable results unless otherwise specified. 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 for the final time, over to you, Bill.

Thanks, Blair, and good morning, everyone. I'm going to make a few opening comments before we get into Q&A, but first, I'd like to pass it over to Nick Fink, our President and CEO-elect, for a few brief comments. Nick, warm welcome. Nick will assume the role on April 13th, and we are pleased to have him with us today to say a few words before we get started. Nick.

Thank you, Bill, and good morning, everyone. I'd like to start by recognizing Bill's leadership over the past seven years as CEO, and in total, his 11 years of contributions to Constellation Brands. He's strengthened the foundation of the company in meaningful and lasting ways, and I valued our partnership during my time on the board. I look forward to continuing to work closely with him over the coming months to ensure a seamless transition as he moves into his role as a strategic advisor. I'm honored to step into the CEO role next week at such an important time for our business. Constellation enters this chapter from a position of strength with a leading portfolio in high-end beer, a reshaped wine and spirits business, best-in-cost marketing and sales capabilities, and a proven playbook that continues to deliver consistent share gains year after year. While the consumer landscape remains dynamic, I firmly believe that we are well positioned to continue delivering for our consumers, employees, distributors, and shareholders over the long term. Having served on the board for the past five years, I've been closely involved in our key strategic and operational priorities. That perspective gives me strong conviction in our strategy and in our ability to execute going forward. we will continue to be insights-driven and consumer-obsessed, lean into our strengths in beer, allocate capital with discipline, and generate strong cash flow while thoughtfully navigating an evolving consumer landscape. As I formally assumed the role on April 13th, I look forward to spending time with our operators, distributors, and many of you in the investment community to gain an even deeper understanding as we begin to shape the next phase of our growth journey ahead. I'll close by reiterating my confidence in this business, in our iconic brand portfolio, our route to market, in consumer-led marketing, our best-in-class operations, and most importantly, our talented people. These strengths underpin our differentiated capabilities as we seek to continue delivering sustainable long-term growth and attractive shareholder returns. With that, I'll turn it back to Bill.

Thanks, Nick. Just a few additional comments from me before we start Q&A. As we stated in our published remarks, we ended the year with some solid momentum in our beer business, despite operating in a challenging environment during our fiscal 26. It was a year that required agility and focus as consumers continued to navigate a tough economic backdrop with more selective shopping behavior, which weighed on overall category performance for much of the year. Our teams stayed tightly aligned on what we can control, growing points of distribution, supporting our core brands, and executing with discipline. That approach allowed us to take share and strengthen our competitive position. Our beer portfolio continued to lead the high-end segment, with Modelo Especial maintaining its leadership as the number one beer brand by dollars in the United States, and momentum improved as the year progressed. In Wine and Spirits, our efforts to reshape the portfolio are gaining traction, with strong contributions from brands like Kim Crawford and MeCampo. Lastly, from a financial standpoint, the business delivered solid cash generation, giving us the flexibility to reinvest while also returning capital to shareholders. As we look ahead, we're encouraged by the improvement we saw exiting the year, but we remain realistic about the current operating environment, which remains fluid with limited visibility. That said, we feel good about where we're positioned. With a strong portfolio, clear priorities, and a disciplined approach to operating, we believe we're well-equipped to continue building momentum and delivering long-term value. Now, back over to you, Donna, for the questions. Thank you. The floor is now

open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. As a reminder, we do please limit yourself to one question. Our first question today is coming from Nick Modi of RBC Capital Markets.

Please go ahead. Yeah, thanks everyone. And Bill, best of luck going forward. Thank you. Maybe you could just, you know, unpack the beer top line guidance for the upcoming fiscal year the negative one the positive one and I asked that in the context of you know what seemingly is a pretty good start to March or to the year you know you can just give us some context on kind of what you're thinking is there anything you know that we should be you know thinking about in terms of like why it would decelerate for the full year relative to what we're seeing in March right now any any

context would be helpful. Thanks. Sure, Nick. Obviously, the single biggest challenge that exists now is our limited visibility. Things have been very volatile in terms of what the consumer reaction has been, and our continuing research suggests that the consumer is still cautious. With that said, as we noted in our overview, we exited last year in a very strong position. We saw sequential gains in the quarter, and we saw depletions up in the quarter, which had not been the case over the prior three quarters. March is off to a solid start, better than planned, with continued increasing momentum. So certainly, we remain optimistic about the year that we have just begun. But we need to continue to recognize volatility has been

high and visibility has been low. Thank you. The next question is coming from Bonnie Herzog of

Goldman Sachs. Please go ahead. All right. Thank you. And best of luck, Bill, from me too. It was great working with you. I have a question on beer operating margins. You're guiding margins of 37% to 38% for this year, which is a step down from your prior guidance of 39% to 40%. So can you help us understand the key drivers of the new margin delivery, I guess, especially around fixed cost absorption from, you know, the new Veracruz brewery coming online. Also, how should we think about the phasing of margins across 1H versus 2H? And then finally, I guess I'm curious to know if you believe you could get back to the, you know, 40% margin range. And if so, you know, is that a possibly next fiscal year, or is this going to take longer? Thank you. Thanks for the question,

Bonnie. So you're right. We've got it to 37 to 38 margins. I'll tell you what the headwinds are, and then what we're doing to offset those headwinds. You rightfully pointed out that the primary headwind as it relates to operating our gross profit margins are expansion-related cost associated with our new brewery in Veracruz, which is expected to begin production around the middle of our fiscal year. With that, we were going to have some fixed cost absorption headwinds as we go through the year. And then further down the P&L, we have an increase in our SG&A expense related to lower incentive comp in FY26 and incremental investments in marketing that we will make in this year to drive continued growth within the business both in the short and in the long term. Offsetting those headwinds will be one to two percent price delivery, which as we've noted in the materials we uploaded overnight, will be at the lower end of the range this year. We will continue to deliver against our cost savings agenda, where we've been very successful in our migration from a builder to an operator. And then we additionally, as you saw in our materials, we'll have relief from aluminum tariffs this year. As it relates to beyond FY27, we're not prepared to talk around any guidance beyond this year. So we'll cover that as we go through this year and into next.

Thank you. The next question is coming from Dara Mohsinian of Morgan Stanley. Please go ahead.

Hey, best wishes for me also, Bill. I've enjoyed working with you. So, and, Garth, maybe if I could just follow up on the beer margin side, can you just break out what you're expecting from a key input cost standpoint in fiscal 27, aluminum, freight, and some of the other key buckets, just how hedge you are on the input cost side as well as FX side? And then as you think about beer margins, maybe volatility there, what might be some of the upside drivers versus downside drivers, and then also just, you know, focus on wine and spirits as much, but the margin guidance is clearly a lot lower than maybe the ongoing business should support longer term. So just help us understand the wine and spirits margin guidance for 27, How much of that is depressed by factors specific to 27 versus extends longer term?

Yeah, there was a lot there, so I hope I got it all. So from a hedging perspective, we're fairly well hedged as we enter the year on both the commodities and on currencies. For fuel, we're nearly 100% hedged. On aluminum, we're approximately 90% hedged. Natural gas, about 80% hedged. And corn, about 75% hedged. across all of our currencies. We're right around 80% hedged as we entered the year, so we're in a good spot. In terms of, you know, beer margins and what could lead to upside, I think volume, you know, as Bill noted, we're cautiously optimistic around the start of the year, and if volumes were to increase from where we are, that would certainly benefit the margin profile. As it relates to wine and spirits margins, there are a number of factors that are going in to the guided margin profile, including ongoing category pressures, channel headwinds, the timing of our cost of leveraging, and distributor inventory rebalancing. Starting with the category headwinds, we've seen a material downgrade in the outlook from where we were a year ago. U.S. high-end wine has shifted from expected low single-digit growth to low single-digit declines. U.S. high-end spirits are decelerating from plus mid-single-digit growth to flat to slightly down. And so while we're significantly outpacing the market, it's sort of on what I would call a little bit of a lower base. Relating to channels, channel headwinds, we've seen some tasting room, softness in our Napa-based wineries, and then internationally we've seen some weakness as it relates to US-made or US source wines and spirits, particularly in Canada, which is our largest market, where a ban on US wine and spirits remains in place. And then as we outlined and our materials, we've agreed to some inventory rebalancing with our key distributors, reflective of the softness we're seeing in the wine and spirits category. And then, in terms of the timing of cost to leverage, because the top line is softer, as you know in wine, the length of time it takes for things to move from the pail and sheet into the P&L, it'll take a bit longer than expected. That being said, structurally, we still believe that our target margins are achievable over the medium term as distributor inventories normalize, as the category declines moderate, and as our cost savings agenda moves from the balance sheet and into the P&O.

Thank you. The next question is coming from Filippo Folorny of Citi. Please go ahead.

Good morning, everyone. Just adding my best wishes to bail and congrats to Nick on the new position. So maybe staying on beer margins, but on the marketing spend side, you mentioned the prepared remarks that you're thinking about 9.5% of sales on marketing. How should we think about the cadence throughout the year? Obviously, you have a World Cup, a FIFA World Cup coming in the summer. Should we think maybe there's a little bit of extra spending in the summer months? And longer term, how you guys think about the marketing level? Is this nine-and-a-half still a good place to think about a longer term beyond fiscal 2017?

You bet. We're going to very aggressively invest against our brands in the first half of this year for a number of reasons. One is the momentum that we saw coming out at the end of the year and the momentum that we've seen in March. Secondly, the World Cup is an outstanding event that provides an opportunity for many of our loyalist consumers to engage with our brands, and we're going to invest heavily against that. We always invest in the first half of the year. You will see additional investment this year. Part of that will be done against our high-end light beer strategy. You've probably noticed we are seeing momentum in our Oro and Premier brands, particularly coming out of our repositioning of our price points for those two sub-brands. And we're going to invest behind it. We think that remains a tremendous opportunity for our business, and we're going to invest behind that. We're going to continue to invest against Modelo. Modelo, we believe, still has a lot of runway. and will be very appropriate in the time frame of the World Cup. And lastly, I've got to make a call out to both Pacifico and Victoria, which are both on a tear. You're going to see more investment against Pacifico than we have done historically, as we see that momentum as one that we can continue to leverage going forward. And last but not least, Victoria. Victoria has done very well and brings in a younger consumer than our overall portfolio mix, which we find is very beneficial for the long run as well. So a lot to be excited about within our brands. That doesn't even begin to touch on things like Sunbrew, which obviously is another one, that showed great momentum in its first full year. So a lot of things for us to invest in, as Garth noted a moment ago. we are increasing our investment this year as we feel it's the perfect time to begin to take advantage of some of this momentum that we're seeing. Thank you. Our next question is coming

from Chris Carey of Little Spargo Securities. Please go ahead. Hi, guys. Thanks for the question.

I wanted to follow up. I think it was Dara's question just around some of the key drivers of margin than have another question, but are you expecting a step up in depreciation this year with the capacity and are you well hedged on FX? I think you've been talking about layering in some hedges over the past several years. So if you could just confirm those for me, please. And then just from a medium term perspective, I think we saw that you had given some concrete targets, you know, for, for cases on Pacifico over the medium term, can you just expand on that and, and how you see the portfolio evolving and some of the key drivers of your business, you know, kind of through fiscal 30, you know, is Pacifico going to be the new growth driver as, as Modelo normalizes? So, you know, I'd appreciate just some confirmation on the

margins in the medium term. Thanks. Yeah, Chris, so I'll take the first part of that. And as it relates to depreciation, we are expecting a step into up in depreciation as Veracruz comes online in the middle or expected to be the middle of our fiscal year. And then as it relates to currency hedging, across all of the currencies that we hedge, we're roughly hedged at about 80%, and that's inclusive of the Mexican peso. And obviously, we don't get too far down the

track on what we expect volumetrically for our brands. But I think your statement, do you expect Pacifico to be a continuing growth driver for our business? The answer is yes. I think you can see by the takeaway that's existing in Circana channels, Pacifico continues to explode. And it's done a very similar thing to what you saw initially with Modelo, which was the initial strength was on the West Coast, and you're starting to see that strength broadening across the country. You probably have noted we have a new campaign that focuses on the tremendously exciting yellow color of our cans, which stand out both on the shelf and in the coal box. The consumer continues to be excited about the product in the bottle or the can, and we think that Pacifico is going to be a critically important part of our growth profile going forward, not to diminish, by the way, the potential that still exists on Modelo as well. So lots of areas for growth drivers, but certainly Pacifico is going to be a critically important one

for us going forward. Thank you. The next question is coming from Lauren Lieberman of Barclays.

please go ahead great thanks so much um so bill as you just went through talking about the brands one that was absent was corona extra um and so just i'd love to hear you know a little bit about like kind of what's next for that brand but in particular um also extending to think about modello you share the general market zip codes are continuing to outperform the higher and aesthetic population areas um but i want to talk about corona extra and modello especial particularly within GenMarket and what you've been seeing? And then, like I said at the outset, just kind of more broadly on Corona, any thoughts on kind of a what's next for the brand given, you know, trends have remained pretty soft?

Yeah, no problem. Obviously, Corona remains one of the best-loved brands that we have in the entire category. And I think our ability to do things like Corona Sunbrew and the strength of Familiar are really reflective of the strength of Corona Extra. With that said, we're going to continue to invest aggressively against Extra. Well, we don't see that necessarily as the growth driver of the business going forward. We believe it's important to maintain that with the kind of strength that exists today for that particular business. recognizing the overall family is very healthy for the Corona franchise because of some of those sub-brands like Familiar and Sunbrew and Premier. Relative to Modelo, we have seen improvements, as most of you know. We assess zip code data on a quintile basis. What's the percentage of Hispanic consumers? Less than 20%, 20 to 40, and so on as you go up the ladder. We were very pleased to see coming out of the fourth quarter that all of those quintiles showed a sequential improvement in the takeaway. It was probably most notable in the state of California, which is part of the reason you've seen very strong Serkana data over the recent past, where we have gained over one share point in both dollars and volume over the last four weeks. which gets us back to a more traditional share-gaining position. As you probably saw, we came out of the fourth quarter gaining 0.6 share points. That has accelerated as we've started into the new year. A lot of that has been driven by Modelo as well. As you've seen, Modelo begin to show continued strength, and we continue to invest not only with our core Hispanic consumer, but in the broader marketplace as well. You will expect to see, as you have been if you've been watching any sports, that our focus against sports and that whole platform for Modelo will continue this year, and I think it will speak very well to Modelo's continuability to grow.

Thank you. Our next question is coming from Rob Ottenstein of Evercore ISI. Please go ahead.

Great. Thank you very much. I just would love to understand your process in terms of thinking about capital expenditures, given the uncertain and muted outlook of this year, the declines of last year, the lack of visibility going forward. forward, and obviously, you know, you have to invest ahead of, you know, actual results and visibility. So, how have you adjusted, you know, your thinking on CapEx? What, you know, how do you think about what to spend today for growth tomorrow, and maybe update us in terms of, you know, your medium-term expectations for volume for the business? Thank you. So, let me start,

Now I'll turn it over to Garth for some more specifics about the operational footprint. You know, I think it's important to recognize we've continued to do what we've said for a number of years now around capital allocation, which has involved continuing our spend at the levels that we think are important for the long run. It's continuing to do the dividend. And more importantly, we've continued to return dollars to shareholders. Over $900 million last year, despite some extra dark periods we had in preparation for the announcement of Nick joining our business. So that kind of financial discipline is one that I think you can expect to see continue as we go forward. You know, Nick has been an important part of supporting our development of that strategy over the last five years that he's been on the board. And I think, broadly speaking, you're not going to see any real change in our approach to capital allocation. Now, specifically to the operational side of that, Garth, I'll –

Yeah, yeah, Robert. So, you know, first of all, we're not ready to give any guidance beyond FY27 at this point in terms of growth. That being said, we do expect that we will return to growth and that the headwinds that we're facing today are more cyclical in nature than they are structural. So that being said, we'll continue to operate very modulately as it relates to bringing production capacity online. I think we've been very effective at this over the last several years. You know, this past year, FY26, we spent significantly less in CapEx than where we had started our expectations, you know, in the year. And that's going to continue, right? We'll manage that spend. Some of that spend will get delayed as we bring on capacity later than expected, and some of it may get avoided altogether. To your point on the timing of when you make those decisions, I mean, as we've spoken about before, a lot of what goes into a brewery are long lead items, and so you have to make those commitments ahead of time, sometimes years in advance. And so that's the process we go through is, you know, looking at what we have for expectations for growth and then backing that into when we think that capacity needs to come online. But, again, very successful in managing the modularity of when capacity comes online and then managing the cost associated with it.

Thank you. The next question is coming from Peter Galbo of Bank of America. Please go ahead.

Hey, guys. Good morning. Thanks for the question. Garth, maybe just a clarification and then a question for Bill. I think off the back of Dara's question around just wine and spirits margins for the year, maybe you can just help us a little bit with the phasing. I think that, you know, you talked about inventory distributor reductions. I don't know if that's mostly a Q1 event, so that weighs on the margin. Just any help there. And then, Bill, just a question on beer. You mentioned, you know, Victoria actually being a nice bright spot for the portfolio. Um, that's obviously a very Hispanic dominant brand. And so just, I want to kind of reconcile the comments you have about the Hispanic consumer against, you know, one of the stronger brands in the portfolio, albeit small, you know, growing at the rate that it is given kind of the cautious view. So thanks very much for the thoughts.

So on the, on the first piece of that, I would say that there's nothing abnormal or unusual around the phasing of wine and spirits, uh, margins in FY27, the inventory de-stocking with distributors will happen throughout the year and not sort of in one event, if you will.

So relative to Victoria, one of the things we've seen, and I alluded to it on one of the prior questions, is Victoria has been a much younger demographic, 21 to 25. We're bringing in new consumers. And while you're correct, it is heavily driven by Hispanic consumers. It's a Hispanic consumer that is recognizing the heritage of Victoria and the authenticity of Victoria and are adopting that as their brand. You know, we've seen many times over the course of time that generations, new generations will find a brand that they would like to make their own. And it certainly appears at this point in time, recognizing its early days, that a younger Hispanic consumer is focused on Victoria and is coming to that brand in very strong numbers and quantities. So we're very encouraged about that. You know, it's always good within a portfolio of brands to have a different, somewhat different demographic base. And we think Victoria is going to be a sleeper. You know, it's more than doubled over the last few years. And we think it has a a lot of potential going forward as well, partially because of that younger demographic profile.

Thank you. Our final question today is coming from Nadine Sarwat of Bernstein. Please go ahead.

Hi, guys. Bill, it's been a pleasure working with you, and best of luck in the next chapter. Maybe two from me, just one clarifying on an answer earlier than my actual question. Earlier on the call, you said that you feel that your target margins for wine and spirits are still achievable over the medium term, but I know you withdrew your fiscal 28 guidance. Could you help us understand, therefore, what that target you're referring to is? Is that north of 20%? And then my actual question, mix was a 50 basis point drag to the beer top line in this last quarter. You guys called out packaging type. Can you give it a little bit more color? How much of this is you guys introducing seeing new mixed dilutive offerings? How much is that a behavioral change from the consumer end? And what are you assuming in your full year guidance for this year when it comes to mix? Thank you.

So as it relates to wine and spirits target margins, we still believe that structurally we can get those margins in the low 20s. Again, given all the headwinds that we're facing, that's going to take us a bit longer than expected, but we still expect to achieve that

over the medium term. Thank you. At this time, I'd like to turn the floor back over to Mr. Newlands for closing comments. All right. Thank you, Donna. In closing, literally,

thank you all for joining the call today. As you can see, we are confident we're well-positioned to achieve our objectives in fiscal 27 and continue driving long-term shareholder value. We have a strong foundation and a clear strategy, and this is the right moment for a seamless leadership transition. It has truly been an honor and privilege to serve as CEO of Constellation Brands over the last seven years. Together as an organization, we've accomplished a great deal. We've grown our beer business from roughly 280 million cases to well over 400 million cases, nearly double the size of Modelo Especial, and made it the number one selling beer brand by in America. We reshaped our wine and spirits business to be focused on a portfolio of higher end brands. We've established a capital allocation framework that we executed against with consistent discipline, and we invested behind our organization to develop best-in-class talent and a company culture and future truly worth reaching for. While the industry landscape remains dynamic, I firmly believe Constellation is best positioned in this space with advantaged brands, best-in-class marketing and sales capabilities, and most importantly, an exceptional team. Having worked closely with Nick on the board for the past five years, I know he understands our business deeply and has the leadership, judgment, and strategic perspective to lead this company into its next phase of profitable growth. So to our investors, partners, employees, with gratitude, I thank you for your trust and support over the years. It's been a privilege to lead this remarkable

organization. And with that, Donna, back to you. Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.