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

Oct 01, 2020 • 11:30 am ET

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

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Presentation
Executive
Bill Newlands

brands outpaced the US high-end wine category in IRI. Regarding the Gallo transaction, both Constellation and Gallo remain committed to completing this transaction, and we're very encouraged by the progress that we've been making. We continue to receive positive feedback from the FTC staff in addressing the concerns that they raised related to the transaction. Based on our interactions with the FTC, we expect a consent decree will be submitted to the Commissioners for review and approval in the coming weeks. We're happy to say that this marks the final stage in this process. Once final approval is received, closing can happen quickly, which allows us to forge ahead with this strategy for our wine and spirits business.

And third, the strong performance delivered by our beer and wine and spirits businesses drove strong cash generation, allowing us to further reduce our debt and progress towards our desired leverage range. As a result, we are well positioned to deliver a solid year of organic growth in fiscal '21.

Let's move to a more fulsome discussion of our beer business performance in the quarter. Despite the challenges posed by COVID-19, including the continued partial closure of the on-premise which was down 50% in the quarter year-on-year, Constellation's beer business continues to be one of the largest contributors to US beer industry growth. During the second quarter, our beer business delivered 11% growth in IRI channels overall and more than 15% growth for our priority SKUs. This performance was driven by 12% IRI growth for Modelo Especial, as the brand solidified its position as the Number 3 beer brand in the US beer market, and the brand family is on track to deliver its 35th consecutive year of growth.

The Corona brand family also grew double-digits in IRI channels with the most significant contributions coming from Corona Hard Seltzer, Corona Premier and Corona Extra. We continue to be thrilled with the performance of Corona Hard Seltzer. Despite launching this new brand in the midst of a pandemic, which presented us with -- and prevented us from engaging in a number of the activities conducive to introducing a new brand, Corona Hard Seltzer has become one of the most successful new product launches in our company's history. With the launch of only one SKU to date, the brand continues to exceed our expectations and has already achieved the Number 4 position in the category.

To put this in perspective, Corona Hard Seltzer is the second fastest moving hard seltzer. Let me repeat that, Corona Hard Seltzer is the second fastest moving hard seltzer [Indecipherable] seltzer brands with significant distribution and velocity, and it remains strong as we continue to pick up distribution. These ongoing distribution gains have led to IRI ACV distribution approaching 70% since product launch in March. And to date, the brand has maintained incrementality levels at the 90% rate, significantly outpacing [Phonetic] our expectations.

Corona Hard Seltzer over-indexes to the Hispanic consumer relative to its competitors, which unlocks an untapped