Constellation Brands Inc. (NYSE:STZ) Q2 2021 Earnings Conference Call - Final Transcript

Welcome to the Constellation Brands Q2 Fiscal Year 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations. Please go ahead.

Thanks Jonathan. Good morning, and welcome to Constellation's second quarter '21 conference call. I'm here this morning with Bill Newlands, our CEO; and Garth Hankinson, our CFO.

As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the Company's website at cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors, which may impact forward-looking statements we make on this call.

Before turning the call over to Bill, similar to prior quarters, I would like to ask that we limit everyone to one question per person, which will help us to end our call on time. Thanks in advance. And now, here's Bill.

Thank you, Patty. Good morning and welcome to our second quarter conference call. Before I begin with a discussion of our performance in the quarter, I'd be remiss if I didn't acknowledge the continued and unprecedented challenges of this year, marked by the ongoing impact of the COVID-19 pandemic, ongoing social unrest rooted in a long history of racial injustice in this country and the most recent string of natural disasters, including wildfires across the western part of the United States.

As it relates to the fires, fortunately, all Constellation employees are safe and accounted for, and there have been no direct impacts to any of our facilities. That said, our hearts go out to those who have been adversely affected by the fires, and we send our sincere thanks to the brave firefighters and other emergency personnel working tirelessly to battle the fires and keep people safe.

I'd also like to thank the members of our Constellation team who continue to pull together despite adverse circumstances to drive the success of our business, including excellent second quarter results. As Garth and I review these results, we'd like you to focus on three key takeaways. First, in what was expected to be our most challenging quarter of the year, our team overcame COVID-related headwinds to deliver solid business performance in Q2. This performance was led by our beer business, which grew depletions by almost 5% as we continued to see incredible consumer demand for our portfolio of brands. While the COVID-related slowdown of our beer production in Mexico earlier in the year impacted shipments and net sales in Q2 and created some temporary out-of-stocks at retail, we are quickly recovering and expect inventory to return to normal levels by the end of Q3. And we're beginning to see accelerating consumer takeaway trends in IRI channels as we work to ensure that consumers can find their favorite Constellation products on the shelf at retail.

Second, our wine and spirit premiumization strategy continues to gain traction as our higher-end wine power