Constellation Brands Earnings Call Nuggets: Pricing and Wine Business Outlook
Kaumil Gajrawala – UBS: First question on wine, typically what we always see in the past is the, the first guys to move on price that is below $5, but then as some time passes you start to see more pricing move further up the scale. Is that something we should expect to happen in this cycle as well?
Robert Sands – President and CEO: It’s hard to judge, but that is what we are currently seeing that most of the pricing that has been taken is in the below $5 area, that segment of the market is a lot more concentrated than the above $5, really being dominated by just a couple of brands and a couple of companies. Whether we’ll see pricing above the $5 mark really remains to be seen, but we certainly think that it’s possible.
Kaumil Gajrawala – UBS: Then also as it relates to pricing, you’ve taken pricing in a variety of markets at Crown, can you talk a little bit about the price elasticity you’re seeing in those markets?
Robert Sands – President and CEO: Yeah, we really haven’t seen very much impact of the pricing that we’ve taken. In other words, we haven’t really seen any slowdown in our depletion trends. They’ve continued to remain pretty robust, so we really haven’t seen any impact. We would expect to see some, because whenever you take pricing there is some degree of elasticity, but we’re really not seeing anything at all right now. And I would just point out that the pricing that we took was sort of significantly below just the general level of pricing that’s been taken in the beer industry. So, our pricing was below 2% overall, whereas the industry as a general proposition has taken more pricing than that. So, that could be the reason why we’re really not seeing any slowdown or impact of our pricing thus far, because it was a pretty modest increase.
Wine Business Outlook
Judy Hong – Goldman Sachs: So, first on the wine business. So, it sounds like you’re pretty pleased with the turnaround that you’re seeing on that business, which stepped up innovation, increased investments this year. Do you think that you’re at a point where we could potentially see some profit improvement or do you think that you should continue to see investments perhaps exceeding sales and that sort of compromises margin, because you want a sustained sort of the volume momentum on the wine business?
Robert Ryder – EVP and CFO: Yeah, where we are now Judy, we’re kind of sticking with our guidance for the year. So, we are going to see profit improvement in the wine and spirits segment, albeit not as high as the sales improvement. But as we said at the beginning of the year, that was our conscious effort to keep the top line moving along to maintain or grow share and continue our momentum and to see the result of all the new products we’re introducing and some additional execution focus. So, I think we continue to stick with that and that’s why we’re staying with the guidance for this year. Of course we haven’t given guidance for next year either, but that we’ll be assessing that. We actually haven’t had our internal annual plan meetings yet. So, we’ll be providing guidance for fiscal ’14 in around the April timeframe.
Judy Hong – Goldman Sachs: Then just in terms of the Crown side of the business; I know there’s a lot of innovation and growth that’s coming from sort of the price segment that’s of premium domestics and, you’ve got (indiscernible) that’s growing pretty strongly, but while Crown is coming into the market, do you think that that sort of changes the competitive landscape and whether you see risk to import pricing if you do have that kind of price points really gaining momentum?
Robert Sands – President and CEO: No, we don’t see that impacting the import segment. The import segment remains very strong. It’s driven by completely different market dynamics. Our business is – demographic is significantly different than those of some of the brands that you mention. So, I don’t see it being any issue whatsoever. If anything, it’s rising tide will float our boats. So, I don’t think that it’s an issue for us. If anything, it portends a stronger business in general.
Judy Hong – Goldman Sachs: My last question; if you can just give some commentary around kind of the macro sort of consumer behavior particularly as you got into more December time period. If you look at some of the measure channel data, the beverage category seemed to have slowed a bit in December. So, just curious whether, you know you’ve seen sort of a similar softening across both wine and beer, anything in terms of the channel dynamics on-premise versus off-premise? Any color there would be great.
Robert Sands – President and CEO: So, I think we’ve seen all three categories wine, beer and spirits slow down as we moved into the fourth quarter this year and we have seen the on-premise slowdown as well. The on-premise was probably in positive territory at the beginning of the year and as we moved into fourth quarter, we’re estimating that the on-premise is probably down for beverage alcohol about 3%. So, we’ve seen a slowdown there. The whys and wherefores of the slowdown are hard to know for sure. We pretty much think that its’ probably related to all of this fiscal cliff business which impacted retail in general across all consumer goods, but that’s about the only thing that we can really say with respect to that.
That said, the beverage alcohol category still fundamentally remains pretty strong if we look at wine, there is very, very strong trading up going on in wine. Just for example in the quarter, the wine industry was up about 2% in volume and 6% in dollars with the premium plus categories growing and super premium category plus categories growing double digit. So, things are fundamentally good, although there has been a bit of slowdown. And if you look at our business getting more granular here, I would say that our business performed pretty much on expectations for the holiday season. So, we are not seeing any issue with respect to the full year in that regard.
A Closer Look: Constellations Brands Earnings Cheat Sheet>>