Constellation Brands FY27 Q2 earnings Call - CONSTELLATION BRANDS INC

Ladies and gentlemen, thank you for standing by. Greetings and welcome to the Constellation Brands Fiscal Year 27 Second Quarter Earnings Call. At this time, all participants will be in listen-only mode. The question-and-answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star-0 on your telephone keypad. Please note that today's conference is being recorded. At this point, I will now turn the conference over to Blair Venema, Vice President, Investor Relations. Thank you. You may now begin. Thank you, Rob, and good morning, all. Welcome to Consolation Brands Q2 Fiscal 27 Conference Call. I'm joined this morning by Nick Fink, our CEO, and Garth Hankinson, our CFO. Before we proceed, we trust you had the opportunity to review the news release and CEO-CFO commentary made available in the investor 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. We also encourage you to refer to the news released and Constellation's SEC filings for risk factors that may impact forward-looking statements made on this called. Before turning it over to Nick 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 yourself to one question per person, which will help us to end our call on time. Thanks in advance, and now over to you, Nick. Thanks, Blair. Good morning, everyone. Before we get into the Q&A, I want to take a minute for those of you who may not be out of penitence to read our posted commentary to summarize a few key takeaways from this quarter's results which beat our expectations first we are reiterating our fiscal 2027 guidance including comparable EPS of $11 20 to $11 90 per share and if the positive September trends that we saw continue we would expect to land at the high end of that range second I increased investments and focus on marketing are working we were the number one dollar share gainer in beverage alcohol this quarter our beer business outperformed and accelerated meaningfully quarter-to-quarter Pacifico became a top 10 beer break with a very long distribution runway ahead of us we're significantly outperforming the industry and we are seeing marketing driven green shoots across the board. Finally, our inventory levels are healthy. We have spent much of the first half rebuilding distributed inventory levels, and while there's always going to be month-to-month variability, September depletions are turning in the right direction. Days on hand remain lower than our long-term average, and we entered the third quarter in a much better position. We feel good about where we are for the first off, and this entire team is incredibly focused on executing from here. With that operator, let's please open the line for questions. Thank you. We'll now be conducting a question-and-answer session. As we ask, we remind you to please ask one question so everyone may have a chance to participate. To ask the question today, you may press star 1 from your telephone keypad. The confirmation tone indicate your line is in the question queue. You may press Star 2 if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, for our first question. Thank you, and that first question comes from the line of Nick Motey with RBC. Pleased to see you with your questions. Yeah, thank you. Good morning, everyone. So, Nick, maybe we could just kind of dig into the guidance and some of the comments you just made in the opening. I know there's been a lot of noise, a lot moving pieces, a lot of timing differences maybe you could just give us a little bit more clarity on the back half kind of you know what you're seeing in september in terms of what's driving the improvement is it just timing of labor day or is there something else going on and you know how we should be thinking about kind of what needs to happen to get to the high end um versus i think where most people are kind of configured which is the mid to the lower point of the the guide turn it happy to happy to try to unpack that and i just start by saying we feel really good about the trajectory given the results in the first class and the trends in september which is why we expect now to come in at the high end of the guide should those trends continue now you know you're absolutely right there was timing uh labor day timing between august and september this year we saw that shift but a lot of that timing was offset by an extra cell day in q2 so think of Q2 is neutral, and we actually saw non-timing-related acceleration in the month of September. As our college football and other programming took place, we're seeing a very healthy response to that. So at this point, we feel there'd be a real reversal in trends for us to contemplate the low end of the guide, and there's nothing we're saying today on either the top line or the bottom line to indicate that things are going in that direction. That said, we do want to continue to be prudent in our assumptions and forecasts, and we are just unbelievably focused on delivering for our shareholders. And that's just going to come back to our overall focus on marketing, our own execution, discipline, and pushing the organization to continue to deliver. So, Garth, I don't know if you have any color to add. No, Nick, I mean, I think as you said, we feel good about how we've delivered the first half and Q2, and we aren't confident on where we sit for the rest of the year. As we look at Q2 and we think about had we not shipped to the levels we did to rebuild inventories, if we hadn't done that, we still would have come in above our expectations for the quarter, and that's what gives us confidence that we're in a good position to deliver on the rest of the year. And as you said, if September trends continue to be at the high end of the guidance range. Thank you. The next question is from the line of Peter Galba with Bank of America. Please proceed with your question. Hey, good morning. Thanks for the question. You noted that a key focus in the first half was rebuilding the beer distributor inventories and I think improving days on hand heading into 3Q. I think by our math in the 1st half, you shipped around 8 million cases ahead of what you actually depleted. So maybe you could just help us think about the expected unwind, if any, of that inventory build in the 2nd half, specifically should we expect shipments to lag depletions, kind as you normalize that inventory, or do you still expect to ship ahead of depletes for the full year? Any framework around just the inventory movement and shipment to deplete dynamics would be helpful. Thanks very much. Sure, Peter, happy to do that. And Garth, feel free to add in some color. Here's the headline I'd start with, which is distributed inventories are now in a great position, and they're actually still lower than historical averages. So, you know, we saw an overcorrection of inventories in FY26, and we entered FY27, frankly, too light, and that resulted in us testing the lower limits of how low days on hand can go, and it actually created a number of inefficiencies in our channel, and we were doing a lot of work to make sure that, you Know, we were covering off and keeping shelves full and consumers satisfied everywhere. But, you know, I'll be up with some inefficiencies as we were working hard to move stuff around. And so we needed to ship during the quarter to close out distributor order backlogs and avoid out-of-stocks. And so, you're not going to say, your math, if you take the undershipment in 26 and you look at what we had to ship this year to date, you know, we're about normal for where we would be first half of the year to meet our expectations for building inventory into the summer and then into the fall sports season, et cetera. So I would expect the back half ofthe year to look pretty normal compared to any other year. And, you know for the full year we would expect ships and depletes to track, you know within 99% of each other. Our next question is from the line of Lauren Lieberman with Barclays. Please receive your question. Great. Thanks so much. So, Nick, you're six months in now, and I think we started to talk about this a little bit at the conference, and you laid it out in the prepared remarks last night. brand in the portfolio. And you've also started to talk a little bit about cost discipline, finding efficiencies in the business so you can reinvest. So we'd just love to hear you kind of six months in, you know, a big picture thought about the organization, where there's opportunities for efficiencies and cost discipline to allow you to keep investing for growth. Thanks. Sure. I'll take that in two parts. I want to start with the growth opportunity and the brands. As we discussed, I came in very enthusiastic knowing that we had an exceptional portfolio of brands and talent. I will tell you that spending time out in the field and spending time with our customers and spending time with ourselves as well as our marketing teams et cetera, has only reinforced that. And actually getting into some of the data behind our brands has only left me more enthused. This is an incredibly healthy portfolio. You know, there's no question. We're a growth business, and we need to get that engine humming again. And that's going to take sustained work, right, across marketing, brand positioning, commercialization, products, packs, et cetera. And I think I, you know, we talked about at the conference as well, you know, there are opportunities for us to get more organized and tighter in our execution and discipline behind that brand work, right? And so if I start and look at our scaled brands, there are jobs to be done there that are different to the work that we're doing scaling our new wave brands. And we've started that work, and we're starting to see some of the green shoots come across from that. You know, I think, and I talk about this often because I think it will be a great case study. You know, take Corona, for example. You know we put more behind Corona. We got more focused on what I call granular execution of that brand. It's not a brand that requires awareness driving. It's a brand the requires saliency, and we're seeing some green shoots already. Share has stabilized. If I look at Cercana data, our 12-week is better than our 52-week, and our 4-week is better that our 12 week, right? So I'm not satisfied with where it is, but it's trending in the right direction, a lot better than it was a year ago. I'm looking at the Della, right? You're seeing a nice stabilization of that business. And we know that there are pockets of growth that we can go after, both with our Hispanic consumer, but, you know, you think about the fall, we're getting into football season. That's the middle of the country, right, that's the general population where awareness on this brand is actually incredibly low. A lot of opportunity to go there. And so, you Know, it's different to what might have gotten us here and how we go about now, you're building those brands. You then move over to the middle, which is, you know, scaling that, our next wave of brands, and, you know, this is where the company's playbook is second to none, just world-class, and you can see where Pacifico, you're compounding it at something like a 20% growth rate year-to-date as the number 10 brand already. It's not a small brand, and yet, you Know, it's powered at that kind of growth rate, and You have Victoria performing similarly behind that and then we said you know we're going to have to access some areas where the consumer is and where the growth is and you know whether we're doing that organically through things like our NA portfolio which is gaining more and more traction you got Corona NA now number three by the way not satisfied with it being number three but there's a whole lot more we can put behind that you'll see us do that and And then, you know, something like Spike Day, which is, you know, the hottest subcategory of the subcategory right now. And, you know, we've been able to get into a leading position in a very disciplined way with a huge runway ahead of us to take the Constellation machine and muscle and go build that business. So, you know, I'm feeling, as you can tell, quite enthusiastic about the growth opportunities ahead of us. And then the second part of your question about, you know, that the state of the organization in terms of its ability you know is it lean can it fuel this you know we've done a great job over the last several years driving cost efficiencies i think about 600 million dollars since investor day but i believe we can be more systematic and programmatic about how we go after that you know and the best consumer companies have a multi-year continuous improvement program and that is built out where you know we would have visibility to the activities that are going to drive margin and fuel for growth, you know, four years from now. And, you Know, with the team in place, we're now putting that, and I think that is going to turbocharge our ability to sustain margins as well as reinvest for future growth. So, Garth, I don't see anything to add. Well, yeah, and as we've said previously, and I thank you, as you've all seen in our results, you're getting our capacity bill behind us has freed us up to focus on driving those sustainable efficiencies on our business as well as stepping up our free cash flow generation. As we've evolved from a builder to an operator, we've already generated significant savings in our results, and as Nick just mentioned, $600 million since investor days. And we're not done there. There's still a lot of opportunity for us as we continue to take the company on a more focused journey and increasing our level of operating excellence. So certainly more to come. The next question is from the line of Chris Carey with Wells Fargo. This is you with your question. Hi, good morning, everybody. Morning, Chris. I wanted to go back to, you know, recent expectations and, and guidance, kind of this topic. I think there was a view coming out of the conference earlier or last month that there was incremental pressure on inflation in the back half of the year, and that was going to impact your gross margins specifically. I mean, I think, you know, today, based on the guidance, and correct me if I'm wrong, gross margins are implied to be up in the back Half of the Year, which I think is surprising to some people today. Can you just give us a sense of, did people interpret the back half gross margin expectation wrong? What is delivering that expansion into the back Half of the year? And I think maybe what's underlying the question is whether you have kind of good cost exposure this year and whether that's going to inflational kick up going into fiscal 28 when perhaps you have a bit more depreciation coming on Veracruz. So I know that's a lot, but I think that's a key theme this morning. And I would just love for you to dig a bit deeper into that and help contextualize this dynamic for us. Thank you. Yeah, Chris, as you said, there's a Lot There Unpacked. So let's try and Nick, you can weigh in here too, you know, if you like. So first, you Know, I think if there probably was a little bit of confusion coming out of the conference last month, as we noted those headwinds, we also noted that we expected to deliver the business in line with guidance, which we said at the conference and obviously we're saying here again today. As you look at the second half of the year and our expectations for beer margins, we expect to come in in the second half at 34.5 to 35.5% of operating margins. This is pretty normal for us from a seasonality perspective. As the second-half of the air is our lowest volume period of year, so we have less fixed cost absorption in the second half. This is also the point of the year where we go through maintenance capex, which has an impact on margins. We do expect to have a higher percent of SG&A in the second-half year, as was in our commentary. That should be around 7% in the second- half year. That's driven largely by short-term incentive compensation, where last year we had a lower level of accrual, and so it's an overlap issue for this year. We also intend in the second half of the year to continue to support the brands, as Nick laid out. We're seeing real green shoots from the marketing initiatives that we have underway, and we're confident in the results that they are providing, and that's evidenced by our leading share gains as we plumb through the first half ofthe year. And so from a marketing perspective, in the second half of the year, we expect marketing to be about 10% of net sales, but in the third quarter, this will be above 11% as we continue to lean into our investments in Major League Baseball and NCAA football. You brought up next year and the impact of Veracruz. I'd like to just say we are progressing nicely on Veracluz. We had expected to bring Veracduz online this fiscal year. progress continues we're about 85 percent done with the site there's still some work to be done on utilities site works on roads and things of that nature so our expectation now is to bring that online in the first part of our fiscal year when we do bring that online the depreciation impact on an annualized basis will be about 75 million dollars and on an animalized basis That's about 90 basis points of margin headwind. Thank you. The next question will be coming from the line of Bonnie Herzog with Goldman Sachs. All right. Thank you, good morning, everyone. So you continue to demonstrate discipline, capital allocation, and then as the heavy beer investment cycle winds down and free cash flow inflects, how are you thinking about the balance between debt pay down, organic investment, M&A, and share repurchases. I guess I'm ultimately wondering, what should we expect for the pace of buybacks? Thanks. Yeah, Bonnie, thanks for the question. I mean, I think as you can see in the results, we remain very active in repurchasing shares in the second quarter. And year to date, we've now bought back $530 million worth of shares. I think over the last few years, we've developed a strong track record of buying shares back in a programmatic way, but also through accelerating repurchases when we see a dislocation in our stock price versus its intrinsic value. And that approach is going to continue. You can expect that to remain the case. Given our strong cash flow generation and the $2.5 billion that we have left on our repurchase authorization that runs through FY28, we have the flexibility and the capability to repurchASE more shares. And I think we've got, you know, we've demonstrated that we're very shareholder friendly, and we continue to expect to be so. Anything you want to add, Nick? Yeah, probably I'd just add with respect to the M&A part of your question. You know, we feel we're going to have the flexibility to do, frankly, both and to drive the highest value creation for our shareholders, as long as we're doing it in a very disciplined manner. And I think, you know, we've got an announcement for smaller acquisition here, but I think it's a good example of a framework that the company will use for doing things in a highly disciplined way. We're very excited about adding Spike Day to the portfolio. We think that brand's going to approach 2 million cases for calendar 26, so it will be accretive to growth next year. And yet we've gotten this done for probably somewhere in the same zip code as it would take to develop and launch a new organic innovation without a track record of success already. And so I look at something like that, and I'm like, here's an example of we'll be happy to pay for it if it's hyper-successful, and if not, we've already gotten something that's got some real momentum behind it that will be accretive next year, and we've done it in a highly disciplined way. And I think, you know, I'd look to that as an indication of how we're thinking about M&A going forward. Thank you. The next question is from the line of Kumail Gajwala with Jefferies. Pleased to see your question. Hey, guys. Good morning. You know, if you think about marketing spend, there's a lot of reasons for a big step up in the first half of the year. Obviously, World Cup was part of it. But I hear lots of indications from you, at least on this call and in your comments on continuing the pace. Does that mean the right level is that same new higher level that you had earlier in the year? Maybe that's college sports, maybe that's something else. But what should be the correct run rate when we try to sort of adjust for a once in every four years event that happened recently? yeah you know i'll share some perspectives and go ahead and give some more color around you know the reinvestment right but yeah i started the headline you know we believe we're reinvesting at a healthy rate now but we're we're a braided company i've talked a little bit earlier about you know this company needs to be a growth engine and that growth is going to be driven by our brains and the relevance and saliency of our brains to to our consumers and there are specific things we can do right drive distribution drive awareness drive relevancy um that we we know how to do and marketing is critical to that you know there are you know you brought the world cup so interesting right a major event but wound up being disappointing from industry expectations you know so so what was the learning from that event from us i mean you know a couple things you know firstly i think we did it in a you know very thoughtful and disciplined way and the way we went about executing that you know we came away as you know i'm going to say it the winner of world cup because we had three times more market share gains in beer than the next best competitor which was 400 basis points of outperformance versus the category and we did that with significantly less spend than other people so it was an execution machine now we won't have a big lap from world cup next year because most of the benefit we got from world Cup was share games on premise. We saw the off-premise being fairly flat, but what we did learn from it is it's an opportunity to re-engage consumers and younger consumers around the bureaucracy and around sports. It doesn't have to be every four years. It can be the operating model through which we engage consumers in the category. You'll see us continue. College football is coming up. We saw a really healthy September as that programming started to roll out. And the teams think forward from that. I expect more from us over the next coming weeks and months as we talk about how we're going to use this type of programming to drive awareness all the way through to shelf and the kind of activation that you might see above the line, all theway through the line into retail, at store. And a big takeaway from it is this is an opportunity for us to continue to win through the space, and that we know how to do that. So, you know, it doesn't imply higher spending. It implies that, you Know, we think we're at good levels, and you're going to see us continue to drive the portfolio out of performance with our brains and our know-how. Yeah, I mean, I think the only thing that I would add to that is, as Nick has said, we've tested the limits on a number of things. And I would say that we feel comfortable with the amount of marketing spend that we're going to have this year on a full-year basis. In the last couple years, we probably underspent a bit from where we should have been, and so we're getting that marketing spend back to what we think are the most healthy levels in order to drive the top line in the manner in which we want to drive the top-line. That being said, we hold ourselves very accountable and have a very disciplined approach to how we measure the effectiveness and the returns generated by our marketing spend, and we'll continue to do that. But, again, at this point, we feel good with the levels that we'll have on a full-year basis. Our next question is from the line of Filippo Filarni with Citi. Let's just see if you have a question. Hi. Good morning, everyone. I wanted to go back to your comment, Nick, about the September improvement. I was hoping you can give us a little bit more color on where you're seeing the improvement from a channel standpoint. And I'm asking this because we don't really see a material acceleration in the track channel. So is it coming mainly from the untracked piece, maybe the off-premise untrack or on-premises continuing to do well? So any color you can give there, and especially given the off‑premise undracked is very tied to the Hispanic consumer base, and you see any signs of improvement there, that would be very helpful. And then a quick follow-up on pricing in beer. Price mix was flattish for the quarter. You called out being a little bit more cautious on the price increases. How should we think about that evolving in the back half of the year? Thank you. Yeah, I'll give some color and Mike will give some more color on the pricing equation. You know, I'd say that the September recovery we saw was pretty broad-based. And, you know, as I said earlier, it went well beyond just the timing of Labor Day. I mean, if you just count that on a gross basis, it was a very strong recovery. I think we kind of feel that. There was some very healthy growth in September. But it was broad-based. We saw consumers across the board engaging in the category. I think, you guys, we look at channels right now. We are continuing to see some strength in club in particular. I think particularly with fuel prices, it's been a place that we've seen consumers go, and that leans really well into our relationships there. And so that's a place where we'll continue to lean in. Of course, international accounts, but even in C-Store, getting that mix right and getting the consumer proposition with the right product, right pack at the right place for that consumer is key to winning in those channels where consumers are looking for different things at different moments. And so short answer is pretty broad-based, but our ability to dial in the right mix and right portfolio and right offering within the channels I think is also helping the cause here. And then just with price, I'll say a quick few words, but I'd say philosophically we believe in this strong portfolio of brands and we believe in our long-term ability to drive our pricing algorithm, we also have the financial flexibility to move up and down. We talk about our pricing algorithms somewhere between 1% to 2%, generally speaking, in the long run. I think you'll see us in there. If we think we can sharpen competitiveness by being at the lower end, we have the finance flexibility to do that. And so we're spending a lot of time looking deeply at elasticity, the consumer, the opportunity, the pack price architecture, Are there price gaps, places we can go, value we can offer? And I think you'll see us get much sharper at that over time, which in turn will also help us drive the growth of our larger brands. Yeah, just to pick up from where you left off, Nick, I mean, there really is no change to our pricing discipline. I mean we continue to think that we've got the right approach on a very disciplined and methodical basis looking at markets, looking at brands, looking at SKUs. As we entered into this year, we did say that we intended to be at the lower end of that range as we've been selective with our pricing actions, given the macroeconomic backdrop and the impact that that's having on our consumer. And as we have always said, it's much more cost-effective to retain your consumers than it is to try to regain your consumers. Now, specific to Q2, in Q2 pricing net of mix was roughly flat. That is reflective of an impact of mixed headwinds, commercial investments to support demand through distributor incentives and couponing, and then the carryover from our high-end light beer portfolio repositioning, which was a 25 basis point headwind in the quarter. The next question is in the line of Dara Mahasin with Morgan Stanley. Please receive your question. Hey, good morning, guys. Morning. So, Nick, I just wanted to spend some time discussing what attracted you to Spiked Age strategically, but also really wanted to use the specific deal in the context of if we should expect a broader push into RTDs from an M&A standpoint. Obviously, it's a high-growth segment within alcohol, but also one where barriers to entry or sustainability of brands have been lower. So I just wanted to understand broad thoughts around the RTD space and the opportunity you see there and how STZ capabilities may or may not apply to that space and, again, how aggressive STZ might be in expanding further into RTDs. Sure. And why don't I start in the second part of your question first? and I'll talk about Spectator in particular. On the category itself, look, I've said from the outset, we have to remain relevant to our consumers and to our customers. There is no question in my mind that the vast majority of the value creation in our portfolio is going to come from beer, and we are steadfastly focused on beer. And we have a family of brands that are incredible and powerful. And, you know, if I can get some growth out of the big ones and continue the journey of the Pacifica and Victoria, that alone will create enormous value. But that doesn't mean that there isn't capacity in our system to dial in other areas of growth. And, I don't know if you know this, but just as a reminder, our portfolio is so simple today. We have one-fifth the complexity of the next least complex competitor. And so what our distributors are telling us is there are spaces that are growing, and we want you to get into those spaces. By the way, they're going to distribute these products whether they're owned by us or not. So it's an opportunity to dial up. And so I think as we look at that, you know, we see the opportunity, but very conscious of the point that you just raised, which is, you Know, What is the sustainability of these brands? Where do we think things are going to last over a long time? Where is it worth putting in the investment? And this is a discussion that's happening, not just on M&A, but on the organic things that you will see us put into market and launch as we access points of growth. I'll just tell you, flavors aren't new. Flavors have been around forever. What's new is the amount of iteration around it, the amount a shelf is given to it, the consumer's desire to experiment. And so as we look at that, we go, look, you know, the long-term trend is there. It's always been an access point. What we can do is leverage that access point to find new occasions. It might be our consumer in a different occasion might look for a product like this. And so, you Know, we will look at this space. We'll be very disciplined about where we choose to participate because, to your point, You know, some things aren't sustainable, and we don't want to chase things down rabbit holes. And, you know, Spike Day is a great example of that. People looked at plenty of things. I mean, for every Spike Day, there's a very long list of things that we would not do. But we looked at this one, and he saw something that was the first mover in the category, category that is actually differentiated, brings something new and different to the consumer, mimics an existing consumer behavior, right, Aid and BACA, we noticed, being mixed on certain occasions, and so now this is just a more convenient format. A brand positioning that's incredibly telegraphic, tells the consumer exactly what it is. And from a value creation standpoint, a wide open runway for Constellation to go flex its muscle and demonstrate what it can do from both a brand building perspective where we think we can bring some value and also a distribution roadway perspective where this is still wide open and our distributors are primed and ready to go after this and make this the winning brand in the category. And so those capabilities are there. What we'll also have to be able to demonstrate is that we can also come with the type of iteration, pack price architecture, extensions if necessary to keep the brand fresh and relevant. So we're well aware of that. And finally, we'll also be demonstrating our integration capabilities, which we've honed in other parts of the business and actually at this point have a pretty good track record of taking smaller businesses, integrating them, and scaling them really well. And we're going to take that capability and deploy it on this. And so I think this will be a good case study for what we can do. Yeah, and the only thing, you know, I want to add to that, Nick, is that, you know, given our strong cash flow generation, you know, we have the ability to be able to do this very disciplined M&A, finding the right target, striking the right deal, structuring it in the right nature to enhance our portfolio, and we have the ability continue to return cash to shareholders through cash or through shareholder purchases in our dividend policy. Our next question is from the line of Rob Ottenstein with Evercore ISI. Pleased to see you with your question. Great. Thank you very much. I'm wondering if you could give us your updated views on Victoria. Maybe give us a sense of in its strongest zip codes or towns or however you measure You know, what kind of market share it has? How incremental is it? And, you know, dream the dream, you know, next five, ten years, how big do you think it can be? Thank you. Yeah, well, you Know, I'll give you some thematic thoughts around it. Just sort of started and got to add some color. But, you know, before I even actually answer the question of Victoria itself, you I think what I want to highlight about Victoria, as well as the other brands in the beer portfolio, is the work that we're doing to develop very distinct lanes for each of our brands, right? Because if we have distinct lanes to each of the brands, they will play as a portfolio with significantly more incrementality than if they sit on top of each other. So that's how we're developing them. So you'll see specific work from Corona. You'll see specifically work from Medela. Pacifico, just been through the marketing and activation plans for next year, highly differentiated from the other brands we'll play in a really exciting space. And then Victoria, that's your question, is really going to live in the space of a very authentic Mexican brand. We only advertise today in Spanish. It is our consumer who might travel across the portfolio. that in that particular occasion of either sitting with family, discovering the culture, returning to the roots of authenticity, that is the brand that will play there. And so we've built that very, very specifically, and we've seen the brand respond well. I mean, off the top of my head, I think growth for the first half of the year is mid-teens, compounding on not a small base, but we think that there is a lot of runway to go. and, you know, take a brand like that, which is growing right alongside Pacifico, Pacifico not number 10 brand of beer, which was compounding at closer to 20%, and they're living in very different spaces. And what gets me excited about it is that, you Know, the fact that we can co-develop those things and access different occasions in different spaces, you know what I mean, the dream is you build these things alongside each other really for different occasions and they can live and play together with the rest of the portfolio, Corona, Modelo, and continue to build. You know, it's still very strong out west in that, you know, like a Pacific Gulf and, in fact, like Modelo also gives us a lot of runway to build distribution and awareness very deliberately around the coast and then into the center of the country. Does that add anything? No, I think that's pretty complete. All right, thanks. The next question is from the line of Steve Powers with Deutsche Bank. Pleased to see you. It's your question. Hey. Thanks very much. Appreciate it. You know, Nick, as you think about, I guess, Constellation's medium-term growth in the context of the three pillars that you've outlined and that you were just speaking to, is there a way to dimension maybe how you expect contributions to divide among them? Because I think, you know, to me, the pillars individually each make good intuitive sense, but I'm still left with a question of to what degree in your mind the focus is still on sustaining growth and scale brands like Modelo and Corona versus how strongly focus may be shifting towards those next wave brands or to newer demand spaces, such as what, you know, what we've talked about with Spike Dade. I think maybe some further context there would be helpful. And then, Garth, if I could, just to clean up on Chris's gross margin question from earlier in the call. It sounds like the Veracruz shift is a modest benefit to the second half that we should consider, you know, on beer margins going to 28. I guess, is there anything notable on your contracted or hedged on other operating costs that could be an advantage in 27 that could trigger a catch-up in 28 should current conditions hold? Thanks for that. appreciate it all right so i'll uh i'll start um and give you some conceptual things that you know i don't want to uh we don't currently have the term guidance out there so i don'T want to get ahead of it uh too much but you know i'll give you SOME thoughts which is you know if you look at at scaling our next wave brands you know you can see the growth there right i talked about what pacifico is doing i talked to victoria is doing um by the way uh we have me compo uh which homegrown innovation launch from scratch compounding at 50 percent right now expect that to be a multi-million case uh full strength spirit sprint spend a lot of time in spirits i know how hard that is to do our distributors are fully behind it and so you know there's not just a couple i mean there's a track record here about our ability to take things that you know have momentum and scale them um you know next wave i mean you can see what the category is doing um you can see what NA is doing, I would put in there, and the speed at which that's growing, and our ability to get that to scale, by the way, if that scales to anything close to, say, where you see some of the mix in places like Europe, we expect that to be a massive opportunity for the company, and we expect to go up one in that space. You see something like Spike Day, and I said, you know, approaching two main cases just ready in calendar 26 and and just getting started so you can start to dimensionalize right at those growth rates what might happen there and then to come back to the cover quarter your question okay so you got some stuff that's scaled um what do you what do we do with that you know i i've spent the better part of the last six months you know peeling every piece of data back on on on our big brands and looking at you know where's the chicken armor and i gotta tell you these are some of the healthiest brands i've ever seen in my career and so then the question comes well you know what else should we be doing um and i think that comes down to a more mature set of capabilities around running things that are large and at scale and you know so at the fork of things like pack price architecture so let's see relevant relevancy showing up every day in people's lives not just from an awareness perspective but activating you know at their point of consumption It's dialing in that toolkit. And when I look at that and when I look at the brand shares, when I look at historically how some beer brands have been able to grow, when you've had leadership in the industry engaging consumers, which we may not have had for a long time, notwithstanding the fact that I think Constellation has brought that, but now it's getting to a scale of it can really lead the industry. There's a lot of runway on the growth of our bigger brands. I mean, you know, you take our biggest market, California, and the dollar's 20 share. That's by no means the ceiling for a beer brand. You then go to, you Know, markets like New York and Miami where it's big, but plenty of room to go. And then you have one in the middle of the country. And, you Now, awareness doesn't even register, which is why you see us doing things like, you Know, college football and accessing people. You Know, similarly with Corona. I mean, as we started to turn the dial on Corona, we're seeing a really great response in markets like New York and Miami, which are culturally important markets, where the brand's now starting to gain share again and consumers are reengaging with it. And I'll tell you, that was a pretty blunt instrument of coming in and saying, we're going to focus on these things. After our marketing plans were set for the year, and Billy Garkin and I worked to kind of dial up the investment and challenge the team to come up with new ideas, the plans that they've set for 28 now with the benefit of some time to work on it are much more granular. And so, you know, longer term, to cue the headline, I expect that part of the business to grow. It's not going to grow at the same rate as a Pacifico, but we expect that part of their portfolio to grow, yeah. And on the point around Veracruz, so I appreciate the opportunity to clarify that we expect to put Veracruse in service in the beginning of our fiscal 28, and the depreciation and impact on margins that I articulated will start to occur when we put that in service, and again, that is in fiscal year 28. As it relates to some of the other costs that we're managing across the P&L, we've been very active in terms of managing our commodities and currencies. As we've seen opportunities throughout the fiscal year at moments of weakness, and there have been periods of time where there have been weakness, we've layered in incremental hedges for this year. And in this fiscal year, we are highly hedged across all commodities and currencies, over 90% or at 90% for most, with the exception of diesel, where we're kind of fully hedged for the year. And we've used the opportunities of weakness to layer in incremental hedge hedges to protect the P&L for FY28 and beyond, as is typical with our normal hedging process. I'll just add on that point because it's come up a couple of times now. As we think about inflation, I'd say that I'm not sure that there's been a year in my career as a canal manager that hasn't been sub-inflation all the way back to remember when healthcare inflation was off the charts. What great companies do is get ahead of that and run across the agenda to offset their inflation to sustain their margins and drive fuel for growth. And I just want to make that point very simply because we've had a great program to date but I think you're going to see it get more programmatic, more systematic, and that's part of our jobs. Thank you. Our last and final question comes from the line of Carlos Laboy with HSBC. Please just use your question. Yes, thank you very much. Nick, can you expand on your diagnosis of insufficient saliency for CoronaXtra a little bit more? But beyond saliency, How do you think about Krona's utility and relevance? In other words, is Krono competing less effectively for a role within people's lives? And are there adjustments that are maybe still necessary, particularly with younger beer consumers, since the way they live their lives has certainly changed over the last several years? Yeah, I think that's a great question, right? And so, you know, you go through all the brand data and you're like, okay, well, you know kind of what's what's the chicken armor you know is it is it it's got higher awareness but it's not relevant to people like i and i tell you we're happy to share some of this stuff or go through it you find great awareness most loved beer brand most loved your brand by gen z you know most famous Hispanic brand in the world and you know i could go on and on and off and so you know you step back from it and go and i think it should be a challenge to us right if you have that kind an asset why aren't uh we seeing greater performance on it that's a challenge to put to the team you know and in my mind it is part of what is the playbook that you use to go after this and so it can be everything from you know when you talk about fantasy utility relevance i mean i agree the consumer is more occasion-based right don't depend on the repertoire like what's what's the moment what how are they coming together and then are we present there right so we do a lot of big awareness building but do we still own the the bucket at the at the beach bar you know have we given some of that up and so do we need to redirect some of our dollars into doing things like that and you're going to see us be more active in music sports at the beats actually showing up in those moments and being part of that cultural fabric but it also goes beyond that right we have to look at our pack price architecture our you know do we have the right product at the right price point in the right channel for the right consumer. You know, we're the leader in small sizes, the massive share of small sizes. We're the lead in large sizes, with the massive size of large sizes. How do we pull those levers to be much more granular about how we use those sizes and packs to show up exactly where our consumer is? And so, you know, those are the types of challenges put to the team and the game. I think sort of we saw a rapid response this year, and I'm not satisfied with the results, but I'm encouraged that we're bending the trend. You're not seeing it in the share loss column, and we're gaining share in two of the most culturally relevant markets that we were in, as well as, you know, whatever period you look at, the data is getting better. What I really want to see as we get into next year, and I've now seen the plans, is us get more granular in how we deploy the dollars to do the kinds of things I just described, and I'm pretty encouraged that we will see that brand respond well. Why I am passionate about it is as we can prove that we can do this under corona, we'll be able to prove we can doing this on any other large-scale brand, and we intend to build large-scaled brands in this company. Thank you. At this time, we've reached the end of our question-and-answer session, and I'll turn the floor back to Nick for closing comments. all right well thank you everyone i really appreciate um you joining the call today and the thoughtful questions i'd also like to thank the consolation team who has shown exceptional focus as we've executed across these strategies and i'm really excited about what we're seeing in the business confident and i thought for and uh and i think there is uh is plenty goodness to come. So with that, thank you, everyone, and have a good day. Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's conference. You may now disconnect your lines at this time and have wonderful day.