Thank you, Rob, and good morning, all. Welcome to Constellation Brands' Q2 Fiscal 2027 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 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. We also encourage you to refer to the news release and Constellation's SEC filings for risk factors that may impact forward-looking statements made on this call.

Before turning 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. 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 yet have had a chance 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.

If the positive September trends that we saw continue, we would expect to land at the high end of that range. Second, our 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-on-quarter.

Pacífico became a top 10 beer brand 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've spent much of the first half rebuilding distributor inventory levels.

While there's always going to be month-to-month variability, September depletions are trending 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 half, and this entire team is incredibly focused on executing from here. With that, operator, let's please open the line for questions.

Thank you. Good morning, everyone.

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 of moving pieces, a lot of timing differences.

Maybe you could just give us a little bit more clarity on the back half, kind of 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?

How we should be thinking about kind of what needs to happen to get to the high end versus, I think, where most people are kind of configured, which is the mid to the lower point of the guide.

Sure. Happy to try to unpack that.

I'd just start by saying we feel really good about the trajectory given the results in the first half 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're absolutely right, there was timing, Labor Day timing between August and September this year.

We saw that shift, but a lot of that timing was offset by an extra sell day in Q2. Think of Q2 as neutral, and we actually saw non-timing-related acceleration in the month of September as our college football and other programming took place, and we're seeing very healthy response to that.

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 seeing 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.

That's just going to come back to our evolved focus on marketing, our focused execution, discipline, and pushing the organization to continue to deliver. Garth, don't know if you have any color to add?

No, Nick. I think, as you said, we feel good about how we've delivered the first half and Q2, and we are 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 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.

Hey, good morning, Nick and Garth. 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 first half you shipped around 8 million cases ahead of what you actually depleted.

Maybe you could just help us think about the expected unwind, if any, of that inventory build in the second half, specifically should we expect shipments to lag depletions kind of 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 to add in some color.

Here's the headline I'd start with, which is distributor inventories are now in a great position, and they're actually still lower than historical averages. We saw an overcorrection of inventories in FY '26, and we entered FY '27, frankly, too light, and that resulted in us testing the lower limits of how low days on hands can the 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, we were covering off and keeping shelves full and consumers satisfied everywhere, but, albeit with some inefficiencies as we were working hard to move stuff around.

We needed to ship during the quarter to close out distributor order backlogs and avoid out-of-stocks. I'd say your math, if you if you take the undershipment in '26 and you look at what we had to ship in this year to date, we're about normal for where we would be first half in the of the year to to meet our expectations for building inventory into the summer and then, into the fall sports season, etc.

I would expect the back half of the year to look pretty normal compared to any other year, and, for the full year, we would expect ships and depletes to track, within 99% of each other.

Great, thanks so much. Nick, you're six months in now, and I think we've started to talk about this a little bit at the conference and you laid it out in the prepared remarks last night, brands in the portfolio.

You've also started to talk a little bit about cost discipline, finding efficiencies in the business so you can reinvest. Would just love to hear you kind of six months in, 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 got that.

Thank you, Lauren. I'll take that in kind of two parts.

One I'll start with the growth opportunity and the brands. Look, as we discussed, I came in very enthusiastic knowing that we had an exceptional portfolio of brands and talent.

I'll tell you that spending time out in the field, and spending time with our customers, and spending time with our sales folks, as well as our marketing team, etc., has only reinforced that. Actually getting into some of the data behind our brands has only left me more enthused.

This is an incredibly healthy portfolio. 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, etc. As I think we talked about the conference as well, there are opportunities for us to get more organized and tighter in our execution and discipline behind that brand work, right?

If I start and look at our scaled brands, right, that there are jobs to be done there that are different to the work that we're doing scaling our next-wave brands. We've started that work, and we're starting to see some of the green shoots come across from that.

Take and I talk about this often because I think it will be a great case study. Take Corona, for example.

We put more behind Corona. We got more focused on a called granular execution of that brand.

It's not a brand that requires awareness driving. It's a brand that requires saliency.

We're seeing some green shoots already. Share has stabilized.

If I look at Circana data, our 12-week is better than our 52-week, and our 4-week is better than our 12-week, right? 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 Modelo, 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 think about the fall, we're getting into football season, that's middle of the country, right?

That's general population where awareness on this brand is actually incredibly low. A lot of opportunity to go there.

It's different to what might have gotten us here and how we go about now building those brands. You then move over to the middle, which is scaling our next-wave brands.

This is where the company's playbook is second to none, just world-class. You can see what Pacífico, compounding at something like a 20% growth rate year to date as the number 10 brand already.

It's not a small brand, and yet it's powered at that kind of growth rate. You have Victoria performing similarly behind that.

Then we've said we're going to have to access some areas where the consumer is, and where the growth is, and whether we're doing that organically through things like our NA portfolio, which is gaining more and more traction, you've 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, and you'll see us do that. Then something like SpikedAde, which is the hottest subcategory of the subcategory right now, and 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.

I'm feeling, as you can tell, quite enthusiastic about the growth opportunities ahead of us. Then the second part of your question about the state of the organization in terms of its ability, is it lean?

Can it fuel this? We've done a great job over the last several years driving cost efficiencies.

I think it's about $600 million since Investor Day. I believe we can be more systematic and programmatic about how we go after that.

The best consumer companies have a multiyear continuous improvement program, and that is built out where we would have visibility to the activities that are going to drive margin and fuel for growth 4 years from now. 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.

Garth, don't know if you have anything to add?

Yeah. Nick, as we've said previously, and I think as you've all seen in our results, getting our capacity build 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. As Nick just mentioned, the $600 million since Investor Day, 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. Certainly more to come.

Hi, good morning, everybody.

Morning, Chris.

I wanted to go back to recent expectations 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 think 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? I think maybe what's underlying the question is whether you have kind of good cost exposure this year and whether inflation will kick up going into fiscal '28 when perhaps you have a bit more depreciation coming on Veracruz.

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.

Chris. As you said, there's a lot there to unpack, let's try, and, Nick, you can weigh in here, too, if you like.

First, I think that 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 that 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 year is our lowest volume period of the year, 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 of the year, as it was in our commentary. That should be around 7% in the second half of the 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 continue to support the brands.

As Nick laid out, we're seeing real green shoots from the marketing initiatives that we have underway. We're confident in the results that they are providing.

That's evidenced by our leading share gains as we've gone through the first half of the year. 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 into NCAA football.

You brought up next year and the impact of Veracruz. I'd like to just say we are progressing nicely on Veracruz.

We had expected to bring Veracruz online this fiscal year. Progress continues.

We're about 85% done with the site. There's still some work to be done on utilities, site works on roads, and things of that nature.

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, and on an annualized basis, that's about 90 basis points of margin headwind.

All right, thank you. Good morning, everyone.

You continue to demonstrate disciplined capital allocation. Then as the heavy beer investment cycle winds down and free cash flow inflects, how are you thinking about the balance between debt paydown, organic investment, M&A, and share repurchases?

I guess I'm ultimately wondering what should we expect for the pace of buybacks? Thanks.

Bonnie, thanks for the question. 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. 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 FY '28, we have the flexibility and the capability to repurchase more shares.

I think we've demonstrated that we're very shareholder-friendly, and we continue to expect to be so. Anything you want to add, Nick?

Bonnie, I'd just add with respect to the M&A part of your question, 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. I think, look, we've got a 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 SpikedAde to the portfolio. We think that brand's going to approach 2 million cases for calendar '26, 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.

I look at something like that and here's an example of we'll be happy to pay for it if it's hypersuccessful, 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. I think I would look to that as a indication of how we're thinking about M&A going forward.

Hey, guys. Good morning.

As we think about marketing spend, there was a lot of reasons for a big step-up in the first half of the year. Obviously, World Cup was part of it.

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?

I'll share some perspectives, and Garth, maybe give some more color around the reinvestment rate, but I'd start with the headline, we believe we're reinvesting at a healthy rate now, but we're a branded company. I talked a little bit earlier about this company needs to be a growth engine, and that growth is going to be driven by our brands and the relevance and saliency of our brands to our consumers.

There are specific things we can do, right: drive distribution, drive awareness, drive relevancy that we know how to do. Marketing is critical to that.

Look, you bring up the World Cup, interesting, right, a major event that wound up being disappointing from industry expectations, what was the learning from that event for us? A couple things.

Firstly, I think we did it in, again, a very thoughtful and disciplined way and the way we went about executing that. We came away as, 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.

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 gains on-premise.

We saw the off-premise be fairly flat. What we did learn from it is it's an opportunity to reengage consumers and younger consumers around the beer occasion around sports.

It doesn't have to be every 4 years, right? It can be the operating model through which we engage consumers in the category.

You'll see us continue. College football is coming up, right?

We talked about we saw a really healthy September as that programming started to roll out, and the team's peaked 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 the way through the line into retail at store.

A big takeaway from it was, this is an opportunity for us to continue to win through the space, and that we know how to do that. It doesn't imply higher spending.

It implies that we think we're at good levels and you're going to see us continue to drive portfolio outperformance with our brands and our know-how.

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. 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've 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.

Again, at this point, we feel good with the levels that we'll have on a full-year basis.

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. I'm asking this because we don't really see a material acceleration in the tracked channels.

Is it coming mainly from the untracked piece, maybe the off-premise untracked, or on-premise continuing to do well? Any color you can give there, and especially given the off-premise untracked is very tied to the Hispanic consumer base.

Are you seeing any signs of improvement there? That will be very helpful.

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. Happy to give some color, and, Garth, maybe give some more color on the pricing equation.

I'd say that the September recovery we saw was pretty broad-based, and, as I said earlier, went well beyond just the timing of Labor Day. If you just count that on a gross basis, there's very strong recovery.

I think we kind of peel that out and go, there was some very healthy growth in September. It was broad-based.

We saw kind of consumers across the board engaging in the category. I think, as 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, national accounts, but even in C-store, getting that mix right and getting that consumer proposition with 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.

Short answer, it's 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. Then just with price, I'll say a quick few words, Garth, maybe give a little more color.

I'd say philosophically we believe in this portfolio. It's a 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 price being somewhere between 1 to 2%, generally speaking, over 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 financial flexibility to do that.

We've spent a lot of time looking deeply at elasticities, the consumer, the opportunity, the pack-price architecture, are there price gaps, places we can go, value we can offer. 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.

Just to pick up from where you left off, Nick. There really is no change to our pricing discipline.

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.

As we've 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 mix 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.

Hey, good morning, guys.

Morning.

Morning.

Nick, I just wanted to spend some time discussing what attracted you to SpikedAde 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.

I just want 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.

Yeah. Sure.

Why don't I start with the second part of your question first, and then I'll talk about SpikedAde in particular. On that 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. We have a family of brands that are incredible and powerful, and, if I can get some growth out of the big ones and continue the journey on the Pacífico and Victoria, that alone will create enormous value.

That doesn't mean that there isn't capacity in our system to dial in other areas of growth. Just in case you know this, but just as a reminder, our portfolio is so simple today.

We have 1/5 the complexity of the next least complex competitor. 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. It's an opportunity to dial up.

I think as we look at that, we see the opportunity, but very conscious of the point that you just raised, which is 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. 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.

Flavors aren't new. Flavors have been around forever.

What's new is the amount of iteration around it, the amount of shelf that's given to it, the consumers' desire to experiment. As we look at that, we go, look, 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.

Might be our consumer in a different occasion might look for products like this. We will look at this space.

We'll be very disciplined about where we choose to participate because, to your point, some things aren't sustainable, and we don't want to chase things down rabbit holes. SpikedAde's a great example of that.

We've looked at plenty of things. For every SpikedAde, there's a very long list of things that we would not do.

We looked at this one, and we saw something that was the first mover in the category that is actually differentiated, brings something new and different to the consumer, mimics an existing consumer behavior, right? Ade and vodka we know is 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. From a value creation standpoint, a long, 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 runway 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.

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, we're well aware of that.

Finally, we'll also be demonstrating our integration capabilities, which we've honed in other parts of the business. 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.

The only thing I want to add to that, Nick, is that, given our strong cash flow generation, 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 to continue to return cash to shareholders through cash or through share repurchases and our dividend policy.

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 it, what kind of market share it has, how incremental is it, and dream the dream, next 5, 10 years, how big do you think it can be?

Thank you.

Yeah. I'll give you some thematic thoughts around it, just for a starter, and Garth, you can add some color.

Before even actually answering the question of Victoria itself, 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 for each of our brands, they will play as a portfolio with significantly more incrementality than if they sit on top of each other. You'll see specific work from Corona.

You'll see specific work from Modelo. Pacífico, 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. Then Victoria, to answer your question, is really going to live in the space of very authentic Mexican brand.

We only advertise today in Spanish. It is our consumer who might travel across the portfolio, but 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.

We've built that very, very specifically, and we're seeing that brand respond well. 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.

Take a brand like that, which is growing right alongside Pacífico, right? Pacífico now number 10 brand in beer, which is compounding closer to 20%, and they're living in very different spaces.

What gets me excited about it is that the fact that we can codevelop those things and access different occasions in different spaces, you say so dream the dream. 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.

As Victoria's so very strong out west, and that, like a Pacífico, and in fact like a Modelo, also gives us a lot of runway to build distribution and awareness very deliberately kind of around the coasts and then into the center of the country. Garth, do you want to add anything?

No, I think that's pretty complete.

All right, thanks.

Hey, thanks very much. Appreciate it.

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? Cuz I think, 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 in scale brands like Modelo and Corona versus how strongly focus maybe shifting towards those next-wave brands or to newer demand spaces, such as what we've talked about with SpikedAde.

I think maybe some further context there would be helpful. 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 on beer margins going into '28. I guess, is there anything notable on how you're 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. Thanks for that.

Appreciate it.

All right. I'll start and give you some conceptual things.

We don't currently have medium-term guidance out there, I don't want to get ahead of it too much. I'll give you some thoughts, which is if you look at scaling our next-wave brands, you can see the growth there, right?

I talked about what Pacífico is doing. I talked about what Victoria's doing.

By the way, we have Mi Campo, which homegrown innovation, launched from scratch, compounding at 50% right now. Expect that to be a multimillion-case, full-strength spirits brand.

It's the wild west in spirits, and know how hard that is to do. Our distributors are fully behind it.

There's not just a couple, there's a track record here of our ability to take things that have momentum and scale them. Next wave, you can see what the category is doing.

You can see what NA is doing, that 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 win in that space.

You see something like SpikedAde, as I said, approaching 2 million cases just already in calendar '26 and just getting started. You can start to dimensionalize, right, at those growth rates what might happen there.

Then, to come back to the kind of the core of your question, okay, you got some stuff that's scaled, what do you do with that? I've spent the better part of the last six months peeling every piece of data back on our big brands and looking at where's the chink in the armor.

I've got to tell you, these are some of the healthiest brands I've ever seen in my career. Then the question becomes, well, what else should we be doing?

I think that comes down to a more mature set of capabilities around running things that are large and at scale. Spoke before about things like pack-price architecture, saliency, relevancy, showing up every day in people's lives, not just from awareness perspective, but activating at their point of consumption.

Right, it's dialing in that toolkit. 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's brought that, but now it's getting to a scale of that it can really lead the industry, there's a lot of runway on the growth of our bigger brands.

You take our biggest market, California, Modelo's 20 share, that's by no means the ceiling for a beer brand. You then go to markets like New York and Miami, where it's big, but plenty of room to go.

Then you go into the middle of the country, and awareness it doesn't even register, which is why you see us doing things like college football and accessing people. Similarly with Corona.

As we started to turn the dial on Corona, we're seeing 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. 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 really Garth and I worked to kind of dial up 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 that part are much more granular. Longer term to shoot the headline, I expect that part of the business to grow.

It's not going to grow at the same rate as a Pacífico, but we expect that part of the portfolio to grow.

On the point around Veracruz, I appreciate the opportunity to clarify that we expect to put Veracruz in service in the beginning of our fiscal 2028, 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 2028. 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 this 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 hedges to protect the P&L for FY '28 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. As we think about inflation, look, I'd say that I'm not sure there's been a year in my career, particularly in consumer business, where there hasn't been some inflation.

You can go all the way back to, remember when healthcare inflation was off the charts? What great companies do is get ahead of that and run a cost agenda to offset that inflation to sustain their margins and drive fuel for growth.

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.

Yes, thank you very much. Nick, can you expand on your diagnosis of insufficient saliency for Corona Extra a little bit more?

Beyond saliency, how do you think about Corona's utility and relevance? In other words, is Corona competing less effectively for a role within people's lives?

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?

I think that's a great question, right? If you go through all the brand data and you turn, okay, well, kind of what's the chink in the armor?

It's got high awareness. Is it's not relevant to people?

I tell you, we're happy to share some of this stuff, but when you go through it you find great awareness, most-loved beer brand, most-loved beer brand by Gen Z, most famous Hispanic brand in the world. I could go on and on and on.

You step back from that and go, and I think it should be a challenge to us, right, if you have that kind of an asset, why aren't we seeing greater performance on it, and that's a challenge I put to the team. In my mind, it is part of what is the playbook that you use to go after this.

It can be everything from, when you talked about saliency, utility, relevance, I agree consumer is more occasion-based, right? Don't depend on them for repertoire.

What's the moment? How are they coming together?

Then are we present there, right? We do a lot of big awareness building, but do we still own the bucket at the beach bar?

Have we given some of that up? Do we need to redirect some of our dollars into doing things like that?

You're going to see us be more active in music, sports, at the beach, like actually showing up in those moments and being part of that cultural fabric. It also goes beyond that, right?

We have to look at our pack-price architecture. Do we have the right product at the right price point in the right channel for the right consumer?

We're the leader in small sizes, the massive share of small sizes. We're the leader in large sizes, with the massive share 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? Those are the types of challenges put to the team.

Again, I think so we saw 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're in, as well as 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 seen the plans, is a step forward, 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 on a Corona, we'll be able to prove we can do this on any other large-scale brand, and we intend to build large-scale brands in this company.

All right, well, thank you, everyone. I really appreciate you joining the call today and the thoughtful questions.

I'd also like to thank the Constellation 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 in our path forward, and I think there is plenty of goodness to come. With that, thank you, everyone, and have a good day.