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

Oct 01, 2020 • 11:30 am ET


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


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Bill Newlands

opportunity for this category with the fastest growing demographic in the country. Currently 15% to 20% of brand volume is estimated to come from Hispanic consumers, while other seltzer brands are closer to 10% to 15%. Our expectations for the hard seltzer category growth are extremely high, and our intention is to become a top 3 player in the hard seltzer market as we believe there's a natural and compelling connection between what the Corona brand stands for and what consumers want in a seltzer, refreshing great taste [Technical Issues] the flavor, and ours [Phonetic] at zero carbs, zero sugars and only 90 calories. In the future, you'll see us expand with new flavors, new packages and even new platforms. So stay tuned.

From an operational perspective, we continue to engage in constructive conversations with the Mexican government as it relates to our future plans for production in Mexico. Meanwhile, we are progressing with the 5 million hectoliter expansion of our Obregon facility, which is expected to be completed by the end of this fiscal year. As a reminder, after the completion of the Obregon capacity expansion, we believe we will have ample capacity at the Nava and Obregon breweries to meet consumer demand over the medium term. This includes more than doubling of our seltzer production capacity heading into our next fiscal year.

Let's now move to the quarterly results for our wine and spirits business. I'm pleased that we're nearing the finish line with the Gallo transaction, which paves the way for accelerated growth and margin performance for our wine and spirits business going forward. It also aligns with the vision for our business to be a bold and innovative higher-end wine and spirits company with distinctive brands and products delivering exceptional consumer experiences.

During the quarter, we continued to see the staying power of the consumer-led premiumization trend with premium price point segments continuing to outpace value-priced segments, further reinforcing the strategy of our business. In fact, our higher-end wine Power Brands at the greater than $11 retail price point outpaced the US high-end wine category in IRI channels, driven by Meiomi, Kim Crawford and The Prisoner portfolio, all of which posted double-digit growth in IRI channels for the quarter. These trends drove excellent margin performance for the business as price and mix benefits for this higher-end stable of brands drove significant margin enhancement. Throughout the remainder of the year, we plan to continue to invest in capabilities to position our wine and spirits business for long-term success.

The wine and spirits innovation pipeline is primed with impactful product introductions as we enter the peak seasonal period for the business. These initiatives are aligned with the key consumer macro trends of betterment, convenience and sustainability that we believe can drive scale going forward. Key product launches include The Prisoner cabernet sauvignon and chardonnay varietals, SVEDKA and High West ready-to-drink cocktails, Ruffino wine spritzer and Meiomi cabernet sauvignon. These initiatives will be supported throughout the remainder of the