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| Statement |
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| Beer depletion growth for the quarter came in at 7.9%, reflecting a successful summer selling season, driven by ongoing consumer demand across our industry-leading beer portfolio as evidenced by our share gain acceleration; execution of our distribution and marketing strategies, including extending our category leadership across the key summer season and continued positive results from our Shopper-First Shelf initiative; and lastly, the accelerated growth in share gains across our core and emerging markets |
| In terms of key headlines for the second quarter, I'm pleased to report that our team once again delivered solid overall performance |
| If you think about oral, I mean, Oro is off to an excellent start much in line with what our expectations were |
| So specifically to your question, it remains to be seen, but we feel very confident in our ability to see our brands continue to gain traction simply because there's so much brand loyalty attached to them |
| One is to make sure we're able to keep up with our increasing demand that we consistently see on our business and in a scenario where something is accelerating at a greater pace than what we had anticipated |
| Prioritized investments in our largest Wine and Spirits higher-end brands are yielding outperformance in their respective categories, while partially offsetting and helping to reduce headwinds from our mainstream brands as they continue to shift the mix profile of our portfolio |
| And third, our continued discipline around capital allocation priorities contributed to a strong overall performance in the quarter and sets the stage for fiscal '24 and being another solid year of profitable growth and shareholder returns |
| As noted, our beer team once again delivered remarkable results |
| So we're very positive about that |
| I'm also pleased to report that we further accelerated our share gains during Labor Day |
| Modelo Especial remained the key driver of our strong performance, achieving double-digit volume growth in tracked channels and an 8.6% increase in depletions, ultimately strengthening its position as the top brand across the entire U.S |
| The broader Modelo brand family also delivered phenomenal results with Cheladas achieving 50% volume growth in tracked channels and an increase in depletions of over 40%, while Oro continues to build on a solid launch, increasing its share gains in the overall beer category and performing in line with our plans for the fiscal year |
| Beyond Modelo, our Corona Extra and Pacifico core beer brands also continued to perform strongly |
| Corona Extra delivered solid low single-digit growth in depletions and tracked channel volumes and was the number six share gainer in the category, while Pacifico achieved 15% depletion growth tracked channel volume growth of approximately 27% and was the number eleven top share gainer in tracked channels |
| Our beer brands continue to resonate strongly with the consumer, driving demand for our brands in the second quarter, which supported double-digit net sales and operating income growth in our beer business |
| Retailers are very smart about this, and they recognize where the growth and velocity is coming from and that will work strongly to our advantage as those resets occur |
| Beyond fiscal ‘24, we continue to see significant opportunities to maintain the growth momentum of our beer business, particularly due to the resilience of key secular trends in the consumer landscape like ongoing consumer-led premiumization across beverage alcohol and the continued outsized growth of the Hispanic population in the U.S |
| And those have been consistent year-on-year, which gives us a lot of confidence in our ability to continue to see shelf set gains |
| All told, we remain confident in our outlook for the full year and have tightened the expectations for growth in our beer business at the higher-end of the initial range, while increasing our overall EPS outlook as we drove interest expense lower due to our proactive debt management |
| In our Wine and Spirits portfolio, our higher-end brands continued to outperform and track channels, and we're looking forward to an acceleration in the growth of that business over the second half |
| We've been very pleased by the takeaway in critical, large Hispanic markets, how Oro has done and as we continue to build that out, you'll see additional SKUs coming next year, which we believe will help to continue to accelerate that brand's growth |
| Notably, all of the individual brands just referenced also delivered solid depletion growth rates in the second quarter |
| We expect to have a very strong second half |
| This is an ongoing growth story that we have a lot of confidence in, which is why we raised our expectations for the year in beer |
| As anticipated, our beer business further accelerated during its seasonally strongest period of the year to deliver excellent results |
| As we shared when we provided our outlook for fiscal '24, we see the year as a tale of two halves for the wine and spirits business, with 55% of planned volume being delivered in the second half and operating performance projected to accelerate over the rest of the year due to other key factors |
| We expect to benefit from the more proactive quarterly shipment and depletion rebalancing actions we have undertaken this year versus our single downward shipment adjustment in Q4 of last year |
| We also anticipate an uplift in our direct-to-consumer channels and improved mix from incremental ASPIRA shipments in line with seasonality, as well as benefits from recent price increases |
| Ultimately, we also expect to see operating margins meaningfully accelerate due to the improved sales trends just described and the resulting positive operating leverage |
| We remain very positive about the back half of the year |
| Statement |
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| It's down mid to high single-digits, which obviously is somewhat challenging for us because we do have significant involvement with that category still even though we have divested a number of brands that played in that category |
| All of that said, our Wine and Spirits business continued to face lower demand primarily for our mainstream brands, reflecting continued consumer-led premiumization trends noted in prior occasions, which in turn affected overall performance in the second quarter |
| Wine and Spirits operating income, excluding the gross profit less marketing of the brands that are no longer part of the business following their divestiture, was down 12% and operating margin decreased 10 basis points to 18.2%, also reflecting the same exclusion |
| So all in I think the wine business certainly has seen some challenges, but much like we see in the higher end of the beer business |
| And then at the industry level, one of your competitors, the Investor Day mentioned that September for the industry is particularly sluggish, particularly last couple of weeks as you cycle the shipments ahead of the price increases in the last year |
| For Q2, operating margin decreased by 60 basis points to 39.9% |
| The lower end piece of the business, what we refer to as mainstream, has been very challenged |
| While we are pleased with the results with these leading higher-end brands, our overall Wine and Spirits organic net sales were down 11%, driven primarily by the category headwinds we continue to face from the performance of our volumetrically larger mainstream brands, Woodbridge and SVEDKA |
| The margin decline was primarily driven by the volume declines of our mainstream brands and partially offset by lower material costs, primarily from sustainable packaging projects, supply chain savings, and lower marketing spend as we continue to focus on higher return areas of our portfolio |
| Please note that while we did have some minor disruptions in our supply of kegs during the second quarter, this Q1 to Q2 step down largely reflects a normal seasonal pattern that we have seen in previous years |
| Shipments on an organic basis decreased by 15% and depletions decreased by approximately 8% |
| And so in the second half of the year, obviously, we're going to continue to face inflationary pressures that we've had all year long |
| And the cannibalization rates were less than we had anticipated and, frankly, less than they were in the three test markets that we had originally run |
| However, we now expect interest expense for the full year to be approximately $460 million roughly $40 million lower than our prior guidance due to refinancing actions for some of our higher interest debt and faster-than-expected deleveraging throughout the year |
| Certainly, as we also noted, we expected that we would see some element of tightness during the course of the beginning of this quarter that we are in purely because we are lapping the October price increases that occurred last year and some of the prebuild that people do the retailers do ahead of any price increases that existed |
| I've been getting a lot of questions on why the positive revision to guidance wasn't a little bit more robust |
| We've said consistently -- in fact, we got questions about that on prior calls at times about why we weren't taking more price |
| This decrease was driven mostly by the ongoing inflationary pressures in our COGS as we faced an overall cost increase of approximately 17% |
| Unfortunately, while we've seen some improvement in inflation, we've also seen a strengthening peso kind of hold up |
| For the second quarter year-to-date of fiscal '24, we generated free cash flow of $1 billion, a 15% decrease versus prior year, driven by a 34% increase in CapEx investments attributable to the capacity expansions at our Nava and Obregon facilities and the construction of our new brewery located in Veracruz |
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