Constellation Brands, Inc. Q3 FY2026 earnings call

Beer Margin Drivers - Q3: Volume declines, tariffs, logistics, and brewery maintenance were headwinds; offset by cost savings, favorable pricing, and depreciation timing benefit. - Q4: Seasonality (lowest quarter volume-wise), depreciation benefit turning to headwind, tariffs (aluminum pricing, product mix shift, timing element) as headwinds. ### Pacifico Brand - Pacifico is a successful brand, #2 in California, skews younger, strong social media share of voice, gained 1.5 points in on-premise. Continues to be heavily invested in with plans to grow to a strong #3 in portfolio. ### Distribution - Distribution is a strong opportunity; portfolio gained share in 49 states, with growth in Pacifico and Victoria. Shopper-First Shelf helps retailers build stronger sections, beneficial for growing brands like theirs. ### Capacity Management - Continue modular capacity build-out approach, monitor volume projections, commit to capacity expansion but monitor and assess to delay/defer CapEx if possible. ### Cannabis Exposure - Have shares in Canopy, but not actively engaged in cannabis day-to-day; aware of hemp interactions but no significant impact on beer business seen yet. ### World Cup Impact - World Cup is a big sporting event, overindexes in Hispanic community, expected to have incremental benefits for beer business, with media and promotional efforts planned around it.

In Q3, beer segment margins were impacted by volume declines, tariffs, logistics, and brewery maintenance. However, cost savings initiatives, favorable pricing actions, and a depreciation timing benefit offset some headwinds. Volume was a deleverage factor, but other factors contributed to margin performance. No specific absolute revenue figures for segments given beyond beer, but beer is the key segment discussed.

Fiscal '27 and Beyond - Guidance for FY '27 and beyond will be provided in April as macroeconomic conditions have worsened since last April's guidance. ### Full Year 2026 - Maintained full year guidance, but Q4 beer margins expected to be lower due to seasonality, depreciation turning to headwind, tariffs, and timing elements.

Macro Economic Conditions - Volatility in Hispanic consumer spending due to socioeconomic concerns. ### Tariffs and Aluminum - Tariffs and aluminum pricing continue to be headwinds, with timing elements affecting P&L impact. ### Product Mix Shifts - Ongoing shift towards aluminum from glass impacting margins in certain quarters.

Q: Question on beer op margins in Q3 despite volume deleverage and full year guidance implications for Q4.

A: Garth Hankinson discussed Q3 margins were hit by volume declines, tariffs, logistics, brewery maintenance; Q4 to be lower due to seasonality, depreciation turning to headwind, tariffs (aluminum, product mix, timing).

Q: Question on long-term beer margins guidance for FY '27 and '28.

A: Garth Hankinson said more color on FY '27 and beyond will be in April earnings call as macro conditions changed; Bill Newlands talked about December depletions being roughly as expected with strong Christmas holiday performance.

Q: Question on capacity and CapEx for beer.

A: Garth Hankinson discussed modular capacity build-out approach, monitoring volume projections, and commitments to capacity expansion with ability to delay/defer CapEx.

Q: Question on Pacifico brand.

A: Bill Newlands talked about Pacifico's success, being #2 in California, strong social media, on-premise gains, and ongoing investment to grow to #3 in portfolio.

Q: Question on beer distribution and category outlook.

A: William Newlands discussed distribution as a strong opportunity with portfolio gaining share in 49 states, Shopper-First Shelf benefit, and beer category challenged due to Hispanic consumer socioeconomic concerns.

Q: Question on beer margins in Q4 quantification and off-premise depletions.

A: Garth Hankinson detailed Q4 margin headwinds (depreciation, tariffs, timing); William Newlands talked about off-premise depletions with some regions and on-premise areas performing better than tracked.

Q: Question on beer business recovery potential.

A: William Newlands was cautiously optimistic, mentioned Hispanic consumer concerns, Christmas week strength, and World Cup as potential tailwinds but hard to project.

Q: Question on Hispanic consumer pressure and lapping initial shock.

A: William Newlands talked about varying ZIP code performance, volatility by state/market, and focusing on controllables like distribution and price pack architecture.

Q: Question on beer pricing environment and initiatives.

A: William Newlands discussed expected 1%-2% pricing, positive trends with Oro and Premier price adjustments, and price pack architecture initiatives to meet consumer needs.

Q: Question on Q4 volume decline expectation for beer.

A: William Newlands and Garth Hankinson clarified that Q4 volume declines in beer are expected with depletes and ships aligning in second half of the year.

Q: Question on cannabis rescheduling and intoxicating hemp beverages.

A: William Newlands talked about Canopy shares and awareness of hemp interactions but no significant impact on beer business seen yet.

Q: Question on World Cup impact and spending approach.

A: William Newlands discussed World Cup as a big beer moment, overindexing in Hispanic community, and planned media/promotional efforts around it.