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Hard seltzer is the ‘single best innovation we’ve ever had’: Constellation Brands CEO

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Bill Newlands, Constellation Brands CEO, joins Yahoo Finance to discuss the company’s outlook following its fourth quarter earnings beat and Anheuser-Busch’s lawsuit.

Video Transcript

BRIAN SOZZI: Constellation Brands sold a whole lot of Corona and Modelo beer to those stuck at home during the pandemic in its most recent quarter. But the stock was hit on Thursday by about 5% after what some of the Street saw as a cautious full year outlook. For more on that outlook, let's bring in Constellation Brands president and CEO Bill Newlands. Bill, always good to speak with you. Thanks for taking the time this morning. Let's start on that outlook. How conservative do you think that outlook is that you put out in terms of beer and wine growth this year?

BILL NEWLANDS: Well, I think our outlook is very similar to what we have had as a long term algorithm. When you look at our top line growth for beer, we're still looking at the 7% to 9% growth profile that we've always had. Our margin structure at the bottom line remains between 39 and 40, which is consistent with our long-term algorithm as well. So I'm not sure that people appreciated that this is very consistent with the long-term growth profile that we see for this business.

BRIAN SOZZI: Has the off-premise business started to round the corner for you?

BILL NEWLANDS: You know, it's a little hit and miss. You just don't know quite yet. Some markets have, and some have come around. But, you know, normally, the on-premise business is roughly in the middle teens for us as a percentage of total business. It's still at the moment only trending at about 6% of our total business. Because the marketplace just hasn't recovered just yet. So, that's really an open question. We are doing everything we can. In fact, we made a major donation this week of 1.75 million to help support that industry. But it still has a long way to go, certainly.

JULIE HYMAN: Bill, it's Julie here. I just saw some analyst commentary this morning on your earnings that talked about, actually, the potential for upside perhaps, in particular to those beer numbers if we do see bigger reopening. Is that what you see also? Or do you think that upside to your numbers is more likely than downside, for example? And sort of what would be your best case scenario?

BILL NEWLANDS: Well, we're very pleased to see that the year has gotten off to a really good start. As you know, our fiscal year starts in March, and our March numbers were stronger than what the trend line was coming in. So we're very optimistic not only that our core business of Modelo and Corona and Pacifico are doing extremely well, plus our wine business is doing very, very well.

But we've also got a lot of innovation coming this year, which we think will augment our core business very nicely. We've done it-- we've got it coming in seltzers with multiple new variety packs. We've got Limonada coming. So there's a lot of things that we think position us very well to outperform as the year goes on.

MYLES UDLAND: Hey, Bill, it's Myles here. I wanted to ask a little bit more about that seltzer business when you guys talked about it on the call, the success you'd seen with just the one flavor pack, one SKU so far. What has that business been like? I guess, is there anything you can compare it to in your career, where category kind of just brings up what seemed to me like overnight and now it is a main driver for yourself and a lot of your peers?

BILL NEWLANDS: It's almost unprecedented, but when you look at it, part of what really stands out is, there's a lot of consumers who are looking for betterment. And betterment often means something that's viewed as lighter, more sessionable. You know, the beauty of that for us is, coronavirus is viewed as the number one refreshing beer in the marketplace.

So it's such a natural to have Corona hard seltzer follow up on that betterment trend. So we're very excited. It was the single best innovation that we've ever had last year. We did almost 10 million cases, which, frankly, was everything we could have done. And we're more than doubling capacity this year. So we think that that has a lot of runway. And it's going to be very popular with consumers during the course of this calendar year.

BRIAN SOZZI: Bill, let's stay on hard seltzer here. Why is Anheuser-Busch suing you?

BILL NEWLANDS: Well, you'd really have to ask them. We certainly feel this is totally without merit. As you probably know, we filed a motion to dismiss this week. It'll probably take a few months for that to get ruled on. But we are totally within our sublicense agreement. And this certainly looks like an attempt to damage somebody who's doing a lot of damage in the marketplace by having a lot of success.

BRIAN SOZZI: So essentially, they're trying to get-- are they trying to get your-- the Corona hard seltzer product removed from the market?

BILL NEWLANDS: The suggestion that they have made is that we are not authorized to use the Corona brand name on a hard seltzer. And again, if you read all the documentation, our view is it's totally without merit. And it will go down in flames.

BRIAN SOZZI: All right, on a more upbeat note, you're making a big bet this year on the return of live events. Where are you spending your money?

BILL NEWLANDS: A lot of different things. You know, one of the things that really stood out last year and where we had to pivot was many of the outdoor venues, live sports, things of that nature, just didn't happen and/or they were delayed until later in the year. So we're going to see a lot more activity this year in what has been our more traditional approach to marketing, which is live events, sports activities.

You know, Modelo, as an example, is a sponsor of UFC. There's a number of things that we'll be doing in a live venue that we just weren't able to do last year because it really didn't present itself. We also think sports is going to be a lot more uniform or a lot more consistent with what that has been historically. And we do a lot in the sports area as well, particularly with our beer business.

MYLES UDLAND: And, you know, Bill, finally, before we let you go, I mean, I know we talked about this a little bit earlier on in the conversation. But the reopening trade, what does that look like to Constellation? You know, what are the parts of the portfolio that are going to see big moves as things normalize? We were chatting earlier this week, I said, well, beer's a reopening trade because I want to buy a couple of 30's and go hang out with a bunch of friends. Is that how you guys see it? Or is it more about getting people into restaurants and buying higher ticket spirits and things like that?

BILL NEWLANDS: Well, one of the things that's changed a lot during the pandemic is how people buy. We've seen a lot more three tier e-commerce [INAUDIBLE]. And fortunately, we had made a lot of investments in that area in advance, so it's actually worked quite well for us because both we were prepared, but also consumers are very interested in buying brands that they know and trust. And we have a lot of those throughout our beer, wine, and spirits businesses.

What remains to be seen is how much people do go out and go to restaurants. Our belief is, there's a lot of pent-up demand. And as things open up, we believe the on-premise will come roaring back. The question is, to what level? And what do the channels-- what does the channel makeup look like as time goes forward? That's the big open-ended question that I don't think anybody quite has the crystal ball on just yet.