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Constellation Brands CEO talks booze trends, price increases, and M&A strategy

Constellation Brands CEO & President Bill Newlands joins Yahoo Finance Live to discuss company earnings and growth expectations, trends, price increases amid inflation, and M&A strategy.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: Constellation brands is a success story from this week's list of corporate earnings. The company beat analysts' profit forecasts on the back of strong demand for Corona and Modelo beer. And the company served up a profit outlook that was ahead of Wall Street estimates.

Joining us now in a first on Yahoo Finance interview is Constellation Brands CEO Bill Newlands. Bill, great to get some time with you here. I mentioned to you in break, I just had a milestone birthday. I went to a couple of bars. These places were packed. Really curious on what you're seeing on that on-premise business over at Constellation. And how do you see it taking shape over the next few months?

BILL NEWLANDS: We're seeing a lot of people return to the on-premise, which obviously, is good for us. The one thing that sort of stands out is a lot of on-premise accounts are being much more selective of what they serve, because given they just went through the pandemic time, they want brands that people trust and people know and that they're prepared to order. They're being a little more selective with their selections that they offer to the consumer. So that's working out very well for us.

BRIAN SOZZI: Which brand-- of course, you have Corona and Modelo. At this point in the cycle, which one is outperforming the other?

BILL NEWLANDS: Well, they both did very well, but Modelo has just been on fire. Modelo was up about 15% in depletions last year and continues a trend of double digit growth for almost 30 years. We only missed one year in that window of time. So Modelo has just been on fire. It's now the number two brand in dollars in the US. It's growing in the on-premise. You asked about that a minute ago. And draft is one of the areas that's really growing.

But then again, Corona Extra grew 9% last year as well. So that's certainly held its own.

JULIE HYMAN: Hey, Bill. It's Julie here. The other side of this is the wine and spirits business has been less robust. And part of that has to do with consumer trends. We've talked to you about this a little bit before. But how do you see that going for this year and then going into next year? Do you see any of those trends changing? Are there more levers that you guys can pull in that area too?

BILL NEWLANDS: What we're seeing, Julie, is a real bifurcation of the business. The mainstream business is off, and off pretty substantially. But the upper end of the business, where we play with things like Meiomi and Kim Crawford and The Prisoner and High West, is growing very nicely. And we're outperforming in both ends of that business.

What we're excited to see is we continue to put more focus on the higher end of the business where we think not only the growth is there, but it's much better returns for our shareholders.

BRIAN SOZZI: Bill, my interpretation from listening to the earnings call was that you're being very selective on how much you push through in terms of price increases. What have you been able to pass through? And how have consumers responded?

BILL NEWLANDS: The biggest one where we watch that is in beer. And we have always said we would take 1% to 2%. We did a little more than that last year. But we think it's important to be judicious. This is a time when a lot of consumers are under pressure. And beer, for many, many of them, are one of those affordable luxuries at a time when there's high inflation.

So we're trying to be very careful. We do all of our pricing on a market by market, SKU by SKU basis anyway. But it really gives us a chance to understand where the consumer is coming from and be respectful of that while still doing what we typically do, which is in the 1% to 2% range.

JULIE HYMAN: Bill, I was looking at some of the analysts' commentary in reaction to the earnings. And one of their interpretations of your numbers and particularly your forecast is that you're not going to be aggressive was their interpretation when it comes to mergers and acquisitions, and in particular, in making an offer for a certain energy drink company. I'm just wondering if you can comment on that a little bit more explicitly, about how you're thinking about acquisitions right now.

BILL NEWLANDS: Well, we've been very pointed as to what we expect to do from a capital allocation standpoint. We want to invest behind our beer business. As you know, we're putting in a third site in Mexico. And we'll have some announcements about that, actually, in the next couple of weeks.

We're returning money to shareholders. We announced an ASR program of 500 million yesterday to continue in what we had said we would do, which is to return $5 billion to shareholders by the end of the fiscal year which we just started.

So I think our capital allocation program is pretty clear and very focused. We believe that our core business has some great opportunities, both in the beer business as well as the higher end of the wine and spirits side. And our attention is really focused on delivering against those priorities.

BRIAN SOZZI: Bill, you've seen a lot of cycles in this industry. Does it feel like, to you, that you need to make an acquisition?

BILL NEWLANDS: No. Our business has a lot of runway for growth. We get asked that all the time, Brian, as to how long can this great success continue. And honestly, we don't see any end in sight. Despite the success that we've had, Modelo in particular, using that brand, just simply continues to roll. And it's really developing new audiences.

It started with a Hispanic base. But certainly, it's broadening its market into the non-Hispanic community very, very well over the last few years. So we just believe there's a tremendous runway for our existing portfolio. And all our energy is being put into maximizing that opportunity.

BRIAN SOZZI: Last one before we let you go, Bill, hard seltzer market, has it bottomed?

BILL NEWLANDS: It certainly has slowed significantly. That whole FMV, seltzer, things of that nature certainly is going to have some growth, we believe. It's a funny scenario for us because even though, I think, we have not achieved what we had initially planned, that's a good mix issue for us. We do, actually, better when we sell more beer. So it's a catch-22 on that business.

What's important to us is, we still want to win with ready-to-drink. And there's a number of things that we're doing. You may have seen, we just bought the rest of Austin Cocktails this week, which was our very first female founders program. So we're pretty excited to have brought that into the portfolio. And that's an example of where we're going to put some of our emphasis.

BRIAN SOZZI: Well, congrats on that acquisition there, Bill. Cheers to a great weekend. Constellation Brands CEO Bill Newlands.

BILL NEWLANDS: Thanks very much.