Constellation Brands Class A Earnings Call Nuggets: Wine Outlook and Beer Business
Constellation Brands Class A (NYSE:STZ) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Timothy Ramey – D.A. Davidson: Just so many congratulations on this year and this deal, it is truly transformational. As we think about ’14 Rob I was intrigued by your comments that you do expect to see some margin pressure in wine and we’ve had this argument that we should begin to see wine pricing improving as the grape supply-demand balance improves. Can you expand a bit on that?
Robert Sands – President and CEO: We do have higher grape cost coming through from the calendar year 2011 and 2012 grape harvest. So, that’s what’s primarily putting the margin pressure on the wine side. Now, as it relates to pricing we’ve seen pricing in the low end of the market meaning below $5 which doesn’t really impact us because we don’t really have a significant portion of our portfolio in this segment. But generally in the segments which we call premium plus $5 and above sort of the mainstream of the commercial wine business between $5 and $15 we’ve actually seen very little to no pricing when you start looking at the market on a brand-by-brand and SKU-by-SKU basis, and I say brand-by-brand and SKU-by-SKU because if you’re looking at IRI data you have to be very careful to take into account that it appears that there is pricing, but it’s really all mix related as the higher priced products continue to grow at a faster rate than the lower-priced products. So, it is primarily higher grape cost coming through and no pricing which is driving some margin erosion, but relatively modest level of margin erosion. Right now, I would say our basic strategy is to continue to invest behind our focus brands to drive market share growth and make sure that they remain healthy, so that when the opportunity does arise, we will be able to leverage the P&L to take advantage of the investments that we’ve made and the strength that we’ve achieved for our big brands and our focus brands.
Timothy Ramey – D.A. Davidson: Just a follow-up on the Modelo Chelada launch if I heard you correctly by fall. Is that innovation that occurred strictly by Crown or it was that – is that also something with Modelo Corporate is launching as well?