Constellation Brands, Inc. Q1 FY2027 earnings call

### New CEO Strategic Priorities - New CEO Nick Fink reaffirmed confidence in the enduring strength of Constellation's core brand portfolio, including Modelo, Corona, Pacifico, Kim Crawford, and Mecompo, even amid pressured consumer discretionary spending. - The company will sharpen two distinct growth playbooks: retaining the existing proven, disciplined playbook for scaling emerging and growing brands, and developing a refined playbook for sustaining growth at scale for large, already fully distributed core brands. - The top strategic focus is expanding consumer insights capabilities, leveraging data and technology to better understand consumer behavior, motivations, and consumption occasions to drive more effective resource allocation and sustainable long-term growth. The core portfolio remains the company's top priority for value creation.

### Operational Updates - Q1 started with very strong sales in March, followed by a noticeable softening in April and May driven by a sharp spike in U.S. gas prices that pressured consumer spending, particularly for the company's core Hispanic consumer demographic. - Entering June, after gas price headwinds moderated, the company saw a modest re-acceleration of growth, though not back to March levels, with broad-based strength across most geographies and the company's brands. Texas and Florida remain challenged by macroeconomic headwinds, while California has performed well. - The company recently hired Jack Edwards (previously of Diageo Beer) as the new head of sales, filling a vacancy that existed for over a year, and is prioritizing improved in-field execution with distributors and retailers.

### Brand Portfolio Strategy - For large scaled brands: Modelo Especial still has remaining untapped distribution and unaided awareness growth opportunities to continue scaling. Corona Extra retains excellent underlying brand health (it is still the most loved beer brand in key markets like New York and Miami), and the company will focus on upgrading everyday activation to improve saliency and re-accelerate growth. - The company is pursuing targeted white space expansion through disciplined, test-and-learn investments, prioritizing opportunities already in the portfolio. An example is Corona Non-Alcoholic, which currently ranks 4th in the non-alcohol beer category and is delivering strong double-digit growth, with plans to increase investment to scale the brand further. - The company is expanding beyond category-only competition to target a broader range of consumer occasions, differentiating brand positioning across the portfolio (e.g., Pacifico's adventure-focused lifestyle positioning) to capture a larger share of consumer consumption.

For the beer segment, Q1 FY27 gross margin reached 39%, with 1.8% shipment growth that exceeded analyst expectations. Gross margin expanded 20 basis points year-over-year: 30 basis points of benefit came from improved fixed overhead absorption driven by higher shipments, an additional 20 basis points came from net pricing after input cost adjustments, while these gains were partially offset by 30 basis points of currency headwinds and other minor cost impacts. Operating margin declined 10 basis points year-over-year, as 20 basis points of gross margin expansion was offset by 20 basis points of higher SG&A (from pre-operating staffing for the upcoming Veracruz project) and 10 basis points of incremental marketing spend tied to the upcoming FIFA World Cup. No separate financial performance figures or revenue contribution percentages were provided for other business segments in this call.

- The company maintained its previously issued full-year FY27 beer net sales guidance, despite a stronger than expected first quarter shipment performance and easier year-over-year comparisons coming in Q2 and Q3. - Gross margins are expected to remain strong for the remainder of the fiscal year, but operating margins will face incremental headwinds in Q2 and Q3. The company increased full-year marketing spend expectations, so marketing as a percentage of net sales will exceed 10% in both Q2 and Q3, driven by increased investment around the FIFA World Cup, college football, and the NFL. SG&A increases will also be more material in these two quarters, partially driven by lapping lower incentive compensation in the prior year. - For the full fiscal year, total shipments and depletions are expected to align closely by year-end, as is typical for the company.

- The consumer operating environment remains highly dynamic with low macro visibility, driven by volatile inflation and energy prices (exemplified by the sharp 50%+ average spike in U.S. gas prices in Q1 that pressured consumer spending). - Hispanic consumers, a core demographic for Constellation's beer portfolio, have been disproportionately impacted by macroeconomic headwinds, and consumption in Hispanic zip codes continues to lag general population consumption, even after gas prices moderated. - Certain geographies, specifically Texas and Florida, continue to face macro-led consumption headwinds that have not abated alongside broader improvement. - Emerging high-ABV RTD trends present potential tradeoffs between volume and category value, requiring thoughtful, choiceful participation to manage risks.

Q: What does the differentiated growth playbook for large scaled brands look like in practice, and will white space expansion be organic or acquisitive? What are the most attractive white spaces right now? / A: For emerging brands, Constellation retains its proven, best-in-class playbook focused on disciplined distribution expansion and awareness building. For large scaled brands like Corona (which already has full distribution, high awareness, and strong brand health), the playbook shifts to focusing on consumer saliency, relevance, revenue management and price pack architecture, and targeted activation for key cultural consumption moments. For white spaces, the company will prioritize disciplined, test-and-learn growth of opportunities already in its portfolio, with the example of Corona Non-Alcohol (already a top 4 non-alc beer with strong double-digit growth) as a key area for incremental investment. Large, risky untested bets are not planned.

Q: What drove the stronger than expected beer gross margin expansion in Q1, and what can we expect for margins going forward? / A: Gross margin beat was driven by three key factors: 30 basis points of benefit from improved fixed overhead absorption from higher-than-expected shipments, 20 basis points of benefit from net pricing after input costs, partially offset by 30 basis points of currency headwinds. Going forward, gross margins will remain strong, but operating margins will face headwinds in Q2 and Q3 from higher planned marketing spend (over 10% of net sales) for the World Cup, college football, and NFL, as well as higher SG&A from pre-operating staffing for Veracruz and lapping lower prior-year incentive compensation.

Q: Why did you maintain full-year FY27 guidance despite a stronger than expected first quarter? / A: While Constellation is off to a solid start, the broader operating environment remains highly dynamic with significant low visibility around macroeconomic factors like energy prices and inflation. The company saw large volatility within Q1 (strong March, soft April/May) driven by a sharp spike in gas prices that impacted consumer spending, so management chose to retain the prior outlook after just one strong quarter given ongoing macro uncertainty.

Q: What is your strategy to re-accelerate growth for the two challenged large core brands, Modelo Especial and Corona Extra? / A: Modelo Especial still has significant untapped opportunity to expand distribution and grow unaided awareness (which is surprisingly low for the category's top value brand), so the original scaling playbook still applies there. For Corona Extra, the brand retains excellent underlying brand health as one of the most iconic and most loved beers in key U.S. markets. The challenge is that it is already fully scaled, so the company is building out a new playbook focused on improving everyday consumer activation and saliency, a capability that will also be applied to other fully scaled brands in the future.

Q: How do you view the emerging trend of higher ABV RTD innovation, which may create category volume headwinds? / A: The company sees K-shaped consumer behavior, with both value-driven demand for higher ABV products and premium demand for products like non-alcohol beer. Constellation already has a small presence in higher ABV RTDs and its Shalada business, and will remain thoughtful and choiceful about which emerging trends to participate in, prioritizing disciplined execution for any opportunities it pursues.