Executives: Patty Yahn-Urlaub - VP of IR Rob Sands - President and CEO David Klein - EVP and

CFO
Analysts: Dara Mohsenian - Morgan Stanley Judy Hong - Goldman Sachs Nik Modi - RBC Capital Markets Vivien Azer - Cowen Pablo Zuanic - SIG Mark Swartzberg - Stifel Nicolaus Andrea Teixeira - JPMorgan Rob Ottenstein - Evercore Laurent Grandet - Credit Suisse Bill Chappell - SunTrust Tim Ramey - Pivotal Research Group Stephen Powers -

UBS
Operator: Welcome to the Constellation Brands Fourth Quarter and Full Year 2017 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. Following the prepared remarks, the call will be opened for your question. Instructions will be given at that time. [Operator Instructions].

I will now turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations. Please go ahead. Patty Yahn-Urlaub: Thank you, Maria. Good morning everyone and welcome to Constellation's fourth quarter and fiscal yearend 2017 conference call. I am here this morning with Rob Sands, our President and Chief Executive Officer; and David Klein, our Chief Financial Officer.

This call complements our news release, which has also been furnished to the SEC. During this call, we may discuss financial information on a GAAP, comparable, organic and constant currency basis. However, discussions will generally focus on comparable financial results. Reconciliations between the most directly comparable GAAP measure and these and other non-GAAP measures are included in the news release or otherwise available on the company's website at www.cbrands.com. Please also be aware that we may make forward-looking statements during this call.

While those statements represent our best estimates and expectations, actual results could differ materially from our estimates and expectations. For a detailed list of risk factors that may impact the company's estimates, please refer to the news release and Constellation's SEC filings. Before turning the call over to Rob, I would like to ask that we continue our practice of limiting each person to two questions during the Q&A session, which will help to end our call on schedule. Thanks, in advance and now, here is Rob.

Rob Sands: Thanks, Patty, and good morning, and welcome to our yearend call.

Fiscal 2017 was a very dynamic and rewarding year marked by milestones that produced impressive double-digit growth in sales, EBIT, and operating cash flow. Our path for these impressive results was paved by great execution in growing our core business supported by investments to enhance our portfolio and our operations. I believe it's worth reviewing our achievements as they collectively illustrate our commitment to sustaining profitable growth and building shareholder value. I'll follow that up with a review of our business performance along with some of the great initiatives we have underway for fiscal 2018. We made a series of value-creating portfolio moves that aligned with our premiumization strategy and enabled us to capitalize on U.S.

market trends that favor high-end wine and spirits brands. This included our acquisitions of The Prisoner and Charles Smith wine brands as well as High West Distillery, which paved our entrance into the high-end craft whiskey category. Each of these additions boast award-winning products, premium positioning and exceptional, exceptional growth. In fact, these newly acquired brands grew depletions 47%, 67%, and 34% respectively during our fourth quarter. Meanwhile, the recent sale of our Canadian wine business supports our strategy to focus on higher growth, higher margin business initiatives, and to strengthen the financial profile of our overall wine and spirits business.

Even after the sale of this business, Canada remains our largest export market as we have had excellent success selling some of our focused brands in the Canadian market, including Kim Crawford, Ruffino, and Robert Mondavi. Now these activities were complemented by constellation ventures investments to further explore innovation in brown spirits. They include Catoctin Creek Distilling Company, a producer of premium rye whiskey and gin from organic sources. Bardstown Bourbon, the largest new whiskey distillery in the U.S. and Nelson's Greenbrier distillery, a producer of craft whiskeys.

From an operational perspective, we made strategic investments in our beer business to ensure we have the capacity, quality, control, and flexibility to support the exceptional industry-leading growth of our beer business and to meet expected consumer demand for our products well into the future. We recently acquired ABI's brewing operation in Obregon Mexico, which provides an immediate source of supply and functioning brewery capacity for our iconic portfolio of Mexican import brands as well as flexibility for future innovation initiatives. During the fourth quarter, we completed the next phase of expansion at our Nava Brewery in Mexico to reach 25 million hectoliters of capacity ahead of schedule. And earlier this year, we fired up furnace number two at our nearby glass plant which is now producing quality glass at optimal capacity levels. Throughout fiscal 2017, particularly later in the year, we repurchased more than $1 billion worth of outstanding shares during periods when our stock traded at prices that we determined to be good value, and we achieved investment grade debt status for the first time in the company's history.

So, to recap, the record operating cash flow that we generated in fiscal 2017 provided significant capital allocation flexibility that enabled a sizable dividend increase, significant share repurchases, value-creating acquisitions, and investments to support the outstanding growth momentum of our business. So, let's move now to a discussion of the excellent business performance our team achieved in fiscal 2017 and some of the initiatives we have underway for the coming year. Our beer business continues to be a powerhouse for growth as the number one brewer and seller of imported beer in the U.S. market. For the fourth consecutive year in fiscal 2017, Constellation is the number one, the number one growth contributor in the U.S.

beer category, outperforming key competitors and all other imports, and Constellation was the leader and number one share gainer in the high-end segment of the U.S. beer market in calendar 2016 with our beer business driving almost 100% of import volume growth. Now as we look back at the past year's accomplishments and ahead to fiscal 2018, let's begin our discussion with the clear heavyweights in our portfolio, Corona Extra and Modelo Especial. Our flagship Corona Extra brand has been gaining share and is one of just three brands driving the majority of the growth in the high-end of the U.S. beer market.

In fiscal 2017, this brand grew depletions about 5% versus the prior year and also achieved status on Interbrand’s Top 100 best global brands list. In fiscal 2018, for the fifth consecutive year, we're planning double-digit increases in our Corona media investments and this has been a key growth driver of the brand with particular focus on live sports, including the NBA, year-round soccer, boxing, and the NFL, which deliver the highest reach against our target consumers. Some of the several major initiatives in place to continue driving Corona Extra's growth, we recently introduced three-pack 24 ounce cans in California and are expanding to additional markets, and we plan to regionally expand Corona Extra draft beyond where it is available today. Corona Extra cans continue to represent a big growth opportunity. So, upcoming plans this year include increased media investments and a new TV advertisement, highlighting a limited edition can.

We also expanded our social media support and partnerships to focus on the can format, the on-premise channel and providing enhanced retail tools. Many of these activities are expected to be in full swing as we launch our 120 days of summer campaign beginning with Cinco de Mayo. We recently launched Corona Premier in key test markets, and while it is still too early to call, we are very pleased with the results to date in these markets. We are also in test markets with Corona Familiar 12 ounce bottles. Corona Familiar quarts are already one of the largest packages in the Corona franchise, and so far we are pleased with the early results in the market test.

Moving to Casa Modelo. This trio of brands which includes Modelo Especial, Modelo Negra and Modelo Especial Chelada, is one of the biggest forces in beer, delivering more than 14 million cases of growth to the U.S. beer category in calendar 2016. Modelo Especial which is the Casa Modelo flagship brand has achieved double-digit growth for nearly 25 years and has been one of the largest contributors to US beer category growth over the last five years. Ranked number seven nationally in dollars, Modelo Especial is now a top five beer in eight major U.S.

markets and the number one, the number one beer in Los Angeles. Last year this brand grew depletions more than 18% to almost 85 million cases. In fiscal 2018, our biggest opportunity for Modelo Especial lies in expanding distribution and enhancing our innovation pipeline and we plan to continue to advertise across the entire Modelo family, including New TV and digital advertising. We also see tremendous opportunity in the on-premise channel, where Modelo Especial grew almost 25% across draft, bottle and can offerings last year. The draft format alone increased more than 45% making it the fastest growing U.S.

draft beer brand and the number one shared on-premise channel in 2016. In fact, in recent syndicated on-premise data, Modelo Especial became the largest volume Mexican draft beer in the entire country. Modelo Especial will have a full lineup of retail programs and consumer promotions delivering execution from Cinco de Mayo to the Christmas holiday in fiscal 2018. Modelo Especial recently became the official and exclusive import beer of the Chicago White Sox. This new marketing partnership offers brand exposure across the White Sox as expansive, marketing assets, digital platforms, arena signage and an all new bar connected with the stadium.

In Calendar 2016, Modelo Especial Chelada contributed 95% of Chelada category growth in the U.S. beer market. To capitalize on this trend, Chelada Tamarindo Picante was recently launched becoming the second Chelada flavor to join the Casa Modelo portfolio. In addition, we are launching Chelada three packs to expand our single-serve distribution as well as Modelo Especial 18 packs to allow loyal customers to trade up to larger packages size and hit future price points at retail focused on basket building with larger pack sizes. Now as you're aware, the bench strength of our beer portfolio goes deeper than our biggest brands, we believe Pacifico has the potential to be the next big national brand in our beer business.

In Calendar 2016, this brand sold five million cases in the State of California alone, not only is Pacifico growing double-digits in California, we have had excellent success with our recent expansion efforts in markets like Seattle and Denver with the addition of TV advertising. Pacifico draft velocities are also strong across the country. As a matter of fact, after eight consecutive years of consistent single-digit growth, Pacifico reached the eight million case mark and achieved depletion growth of almost 20% in fiscal 2017. In fiscal 2018, we are launching the Pacifico 12 ounce can to build on success of the 24-ounce SKU. We are doubling our advertising with two new TV spot in channels like ESPN, TNT and Comedy Central, while also investing in live sports including the NBA, MLB and NFL and let's not forget about Ballast Point, which was the number two-dollar growth contributor in the U.S.

craft market this past year adding almost 11% of craft industry volume growth and posting double-digit depletion growth. Throughout the year, Ballast Point beers were awarded more than 40 medals including gold for Grapefruit Sculpin and California Ambers at the U.S. Open Beer Championship. They also won the 2016 Champion Large International Brewery Award for Brewing Excellence at the Australian International Beer Awards. In fiscal 2018, our plan is to continue to expand Ballast Point distribution.

We have opportunities to drive continued growth through innovation with brands like Monterey, Monterey Double IPA, Red Velvet Nitro, Bonito Blonde Ale and Sea Rose Tart Cherry Wheat Ale just to name a few. As you would expect, I have assembled every one of these unique beers and I believe they are all winners. We are also planning to increase our Ballast Point sales and marketing investments while leveraging Constellation resources like National Accounts. These initiatives are expected to drive the double-digit growth we are targeting in fiscal 2018 for Ballast Point. We continue to build our East Coast brewery in Belleville Virginia and expect to be brewing there this fall.

Overall I am excited about the growth prospects for our beer business for fiscal 2018 and as you can see, we have tremendous opportunity to grow the business to enhance distribution and execution opportunities across the portfolio. As a result, we are targeting beer business net sales growth in the 9% to 11% range and operating income growth of 11% to 13%. Now before moving on wine and spirits, I would like to take a minute to discuss, published IRI and Nielsen Consumer Takeaway Data for our beer business, that corresponds with our fourth quarter results as there seems to be significant discussion related to these growth trends. First IRI channels represent about 50% of our overall beer business at retail and therefore provide only a partial picture of the brand and portfolio performance outside of the sales, shipment and depletion results we report each quarter. With IRI channels throughout the fourth quarter, we experienced significant variability from week to week, especially in the month of December, which was a challenging month for the entire U.S.

beer industry. Much of this relates the year-over-year timing and selling day comparison issues for important holidays during the quarter, including Christmas and New Year. We also experienced poor weather versus the prior year in the month of February particularly in California which is our largest market. While consumer takeaway is a standard measurement, depletions represent our entire business and are an even more comprehensive indicator of growth. Given some of the factors I just mentioned, we continue to see an increase in brand relevance and key brands health metrics for our entire portfolio and we are on track to deliver the completion growth of 9% to 10% for the first calendar quarter of 2017.

As I mentioned earlier our Nava brewery completed its next expansion phase ahead of schedule and became complete independent from ABI Interim Supply Agreement with the acquisition of the Obregon brewery. The Nava brewery is also ahead of schedule to deliver on the next phase of expansion, which takes the brewery 27.5 million hectoliters of capacity by calendar year end and we are getting ready to fire up furnace number three in the coming months at our adjacent Nava glass plant. The Obregon brewery continues to integrate systems and processes with the Constellation business and is performing at a very high utilization level. We are developing plans to increase our output from this site and are very pleased with the prospects that this brewery brings to our operational footprint and as mentioned last quarter, we have re-scoped our Mexicali project to initially built 5 million hectoliters of production capacity at a more measured pace as a result of the acquisition of the Obregon brewery. And now I would like to focus on our operational results for our wine and spirits business, which achieved strong earnings and margin growth for the year.

During fiscal 2017, we executed a key strategic -- our key strategies related to premiumization, innovation and brand building. Overall our wine and spirits portfolio gained total channel volume share in Calendar 2016 while delivering exceptional results for our fast-growing higher margin focused brands, which grew depletions about 9% for the year. Many of these focused brands achieved significant milestones and accomplishments last year. Four of our brands were featured on wine.com's top 100 list for calendar 2016, including The Prisoner, Kim Crawford, which emerges the number one Sauvignon Blanc and IRI channels and Meiomi, which is achieved the one million case milestone. Our products also called out in the Beverage Information Group's Awards where four of our brand achieved fast track status recognizing their impressive growth.

Three were named rising stars and seven were listed as established growth brands including Mark West, Ruffino, Simi and Woodbridge by Robert Mondavi. From an operational perspective, we improved productivity and created efficiencies through our cost of goods sold optimization initiatives and we continue to drive efficiencies throughout our wine and spirits manufacturing operations. For the year, our spirits portfolio posted excellent net sales growth of 9% driven by High West, Paul Masson and SVEDKA. And from a strategic perspective, in fiscal 2018, our goal for the wine and spirits business is to grow profits ahead of sales while improving margin, which is reflected in our fiscal 2018 wine and spirits guidance of 46% sales growth and profit growth in the 5% to 7% range for the year. So what will be the drivers of this goal? We plan to optimize our route to market by evolving our organizational structure to better align with the way we interact with our distributors and our retailers while further developing our account segmentation capabilities to ensure that we are targeting the right products and the right accounts during the right time of the year.

Now these changes in our route to market structure provide additional focus on the higher margin, Fine Wine and Spirits part of our business. We remain committed to mix and margin accretive innovation and new product development and have several new products in the pipeline. This requires us to maintain the discipline we have established with our research and development efforts. It also includes continuing the renovation work we have begun with brands like Robert Mondavi Private Selection, which is a great turnaround story. Building on the success of this brand, we have also renovation plans for some of our other brands, including Clos du Bois, Estancia and Clos.

We are excited about the innovation brands we recently launched and are planning to launch this coming year including Ravage, Cooper & Thief, Kelly collection, Clos du Bois Lightly Effervescent Chardonnay and Meiomi just to name a few. We plan to aggressively manage our core business and drive acceleration of key focused brands that have scale, growth, momentum and higher margins. This is going to require increased marketing investment to achieve this goal. For example, we are launching a new TV advertising campaign for Woodbridge by Robert Mondavi, which is the largest wine brand in our portfolio and we are significantly increasing our digital investments. We also have plans to rationalize our portfolio of hotel brand and have already begun the process of discounting about 15% of our lower margin value brand SKUs in an effort to simplify our portfolio and drive focus on those brands that will drive higher profitability and higher returns and for the fourth consecutive year, we plan to execute price increases for selected products within the portfolio.

Finally, we are committed to operational effectiveness with an increased focus on safety, service and quality while delivering new capabilities from our technology investments. This also includes an expansion of wine and spirits sourcing initiatives to optimize supply by achieving the right style, quality and margins structure across our brand portfolio and we plan to improve production efficiencies through ongoing footprint consolidation. In closing it has certainly been another exciting year at Constellation. We are very proud to have delivered another rewarding year of value to our shareholders and I am pleased that our results can support a significant dividend increase in the coming year. We've delivered exceptional performance and continued growth momentum and remain one of the best performing companies among our consumer peers.

In fact, Constellation drove more dollars sales growth in the next three beverage alcohol companies combined and we constricted 25% of the overall U.S. total beverage alcohol industry growth in calendar 2016. That's why we believe that Constellation provides the best-in-class combination of sustainable topline growth and profitability in the consumer products space. I would like to thank our employees for their outstanding efforts this past year and our shareholders for their continued support. With that, I would now like to turn the call over to David Klein will review our financial results for fiscal 2017 and provide the outlook for fiscal 2018.

Thank you.

David Klein: Thanks Rob. And good morning, everyone. Fiscal '17 was another exciting year as we continue to generate top-tier growth in the CPG space. Our businesses turned strong marketplace performance into strong financial performance as we generated over 7.3 billion of net sales and 12% net sales growth, expanded operating margins in both businesses and improved our consolidated comparable basis operating margin by 140 basis points, increased comparable basis EBIT and diluted EPS 18% and 24% respectively and produced $1.7 billion of operating cash flow, an increase of 20%.

The strong earnings, operating cash flow growth and divestiture of the Canadian wine business helped our net debt to comparable basis EBITDA ratio finish at 3.7 times, even as we made capital investments in our Mexican operations, purchased the Obregon brewery, acquired The Prisoner, Charles Smith and High West and returned cash to shareholders with $315 million of dividends paid and $1.1 billion in repurchases of stock. We expect fiscal '18 to be another year of strong financial performance as we're targeting healthy net sales, EBIT, comparable basis EPS and operating cash flow growth, while we continue to invest in our world-class Mexican beer operating platform and increase our dividend per share by approximately 30%. Let's look at fiscal '17 performance in more detail where I'll generally focus on comparable basis financial results starting with beer. Net sales grew 17%. Organic net sales increased 13% primarily due to volume growth of 11% and favorable pricing.

Depletion growth for the year came in at 10.4%. These results were in-line with the enhanced beer guidance we provided at the second quarter. I would like to point out that previously reported beer shipment and depletions volume have been restated for a correction related to the conversion of 7-ounce Coronita cases to 12-ounce 24-pack case equivalents. This restatement had an immaterial impact on previously reported growth rates. We've added historical shipment and depletion information to our segment schedule located in the financial history section of our investor website.

Beer operating margin increased 140 basis points to 36.3%. Benefits from pricing and foreign currency were partially offset by marketing investments and consolidation of the Ballast Point business. For wine and spirits, net sales increased 6%. This reflects a 4% increase in organic net sales driven by volume growth and favorable mix and an acquisition benefit from Meiomi and The Prisoner. Total U.S.

depletions grew 3% for the year while our focus brand portfolio posted 9% depletion growth. Wine and spirits' operating margin increased 100 basis points to 25.8%. Benefits primarily from the addition of Meiomi and The Prisoner along with favorable mix were partially offset by investments in SG&A and marketing. Interest expense for the year increased 6% to $333 million as higher average borrowing rates were partially offset by lower average interest rates. When factoring in cash on hand, our net debt at the end of February totaled $9.1 billion an increase of $1.1 billion since the end of fiscal '16.

This activity primarily reflects the funding for The Prisoner, Charles Smith, High West and Obregon acquisitions as well as our stock repurchases, partially offset by proceeds from the divestiture of the Canadian wine business and our free cash flow generation. Our net debt to comparable basis EBITDA leverage ratio came in at 3.7 times at the end of fiscal '17 versus 3.8 times at the end of fiscal '16. Our comparable basis effective tax rate for the year came in at 26.8% versus 29.6% last year. This reflects a benefit of the APB 23 Accounting on part of our current year foreign earnings. As a reminder, during Q3 fiscal '17, we determined that a portion of our foreign earnings would be indefinitely reinvested.

This assertion allows the company to record income taxes on certain foreign earnings using the applicable foreign jurisdiction tax rates rather than the higher U.S. tax rate. Now let's review Q4 results. Comparable basis diluted EPS came in at a $1.48 per share up 24%. Organic beer net sales increased 10% due to volume growth of 9% and favorable pricing.

Beer operating margin increased 320 basis points to 38%. This increase was primarily driven by foreign currency as the benefits from pricing was essentially offset by higher depreciation. Wine and spirits' organic net sales increased 4% mostly due to volume growth. Wine and spirits' operating margin increased to 160 basis points to 26.6%. Benefits from the divestiture of the Canadian wine business and the acquisition of The Prisoner and Charles Smith were partially offset by investments in SG&A and marketing.

Moving to Fiscal '17 free cash flow, which we define as net cash provided by operating activities less CapEx, we generated $789 million compared to $522 million last year. Operating cash flow totaled $1.7 billion up 20% primarily driven by our earnings growth and CapEx totaled $907 million, which was slightly above last year spent. Moving to our full year fiscal '18 P&L and free cash flow outlook, for fiscal '18 we expect to leverage our ongoing portfolio premiumization efforts and execute the marketplace initiatives, outlined by Rob, to deliver another year of strong financial performance as we are projecting our comparable basis diluted EPS to be in the range of $7.70 to $8 per share. The midpoint of this guidance has us targeting 16% growth. Our beer business is targeting net sales growth in the range of 9% to 11% and operating income growth in the range of 11% to 13%.

Our projections include 1% to 2% of anticipated pricing benefit from our Mexican portfolio. We're pleased that our beer operating margin finished fiscal '17 a little over 36%, which was a little above the high-end of our most recent guidance. The outperformance was primarily driven by FX favorability that I discussed earlier. Our fiscal '18 beer segment guidance had us targeting operating margin expansion for the year. In fiscal '18, we expect to see positive growth margin benefits from product pricing, ongoing favorability from foreign currency, glass sourcing initiatives and supply independence from ABI.

These benefits will be partially offset by our ramp up in depreciation as we continue to bring assets online and optimize new capacity. Looking closer at depreciation and amortization expense for the beer segment, it totaled $115 million in fiscal '17. We expect that to increase by approximately 50% in fiscal '18. We also fiscal '18 SG&A and marketing spend rate as a percentage of sales to be similar to fiscal '17. For the wine and spirits business for fiscal '18, we expect reported net sales to decrease in the range of 46% and operating income to be flat.

These projections include the estimated negative impact of the divestiture of the Canadian wine business and the estimated incremental benefits from the High West, Charles Smith and The Prisoner acquisitions. As outlined in our press release, for fiscal '17 through the mid-December divestiture date, net sales and operating income that will no longer be part of our wine and spirits segment as a result of the sale of the Canadian wine business, totaled $311 million and $50 million respectively. When excluding these amounts from our fiscal '17 wine and spirits results, we expect net sales growth of 46% and operating income growth 5% to 7% as our premiumization activities continue to drive operating margin expansion. In addition, we expect our tax rate to approximate 22%. The decrease versus the fiscal '17 tax rate reflects additional anticipated foreign tax rate benefits through the APB 23 assertion on a larger portion of our foreign earnings and an anticipated benefit from a new accounting standard related to stock-based payment awards, which Constellation will adopt starting in fiscal '18.

Let me spend a few minutes on this. In fiscal '17 in prior years, accounting standards required excess tax benefits related to stock-based compensation awards to be recognized in equity and the cash benefit to be reflected in the financing section of the cash flow statement. The new standard now requires this benefit to be recognized as a reduction of tax expense in the income statement and presented in the operating section of the cash flow statement. Our tax rate guidance includes an estimated 3% benefit related to the adoption of this new standard. This benefit can fluctuate significantly depending on the timing and level of stock option exercises.

As a result of this, we expect much more volatility in our effective tax rate on an annual and a quarterly basis. Interest expense is expected to be in the range of $340 million to $350 million and weighted average diluted shares outstanding are targeted at $201 million. This does not assume additional share repurchases. I would also note that our comparable basis guidance excludes comparable adjustments, which are detailed in the release. We expect fiscal '18 free cash flow to be in the range of $725 million to $825 million.

This reflects operating cash flow in the range of $1.9 billion to $2.1 billion and CapEx in the range of $1.175 billion to $1.275 billion. This includes approximately $1 billion of CapEx for our Mexico beer operations expansion. Fiscal '18 should represent the peak spending year for these activities. In closing, we believe we have the right strategies in place to capture the growth opportunities in beverage alcohol over the long-term. Our impressive fiscal '17 results and our business initiatives and financial goals for fiscal '18, demonstrate our focus on generating sustainable growth and top-tier financial performance in the CPG space as part of our efforts to increase shareholder value.

And with that, Rob and I are happy to take your questions.

Operator: Thank you. [Operator instructions] Our first question comes from the line of Dara Mohsenian of Morgan Stanley.

Dara Mohsenian: Hey good morning, guys.

Rob Sands: Hey Dara.

Dara Mohsenian: So, Rob on the beer volume front, you continue to perform very well from a growth standpoint and obviously from a market share standpoint within the industry. It's not much of a change versus the larger brewers, but we have seen more recently a large slowdown in the craft segment and getting more fair share of merchandising and distribution has already been a focus for you guys in terms of your beer portfolio. So in light of those factors, I was just hoping you could review for us, the rated distribution expansion you're expecting in fiscal 2018? Should we expect an acceleration versus recent trend, and then secondly, also on the beer volume front now that you have more capacity in place, are there any big opportunities across your brand portfolio or on the innovation front that you're now pursuing more aggressively as a result of the capacity growth, thanks?

Rob Sands: So yeah, we are expecting to increase the pace of distribution growth across our beer portfolio. In fact, we expect roughly 70% of our growth in beer next year Dara to come from distribution growth. So, this is really the key variable in achieving our results and with the momentum behind our portfolio and the nature of our portfolio entirely on the high end and really being one of the most important profit drivers at wholesale and at retail, okay, we expect that we will achieve our distribution growth goals and therefore our overall growth goals.

Now to your next question about production capacity and innovation, the answer to your question is 100% totally. We are well set up now to really drive, number one, parts of the business that we haven't been driving really because we were concerned while we were under the interim supply agreement and we didn't have necessarily the capacity in place to start driving business that we were uncertain that we could supply. So certainly in terms of existing brands, other brands in the portfolio like Pacifico where we're really starting to make a push to driving that to be one of the key growth providers in the portfolio is an example and then clearly our NPD in beer, which we’ve recently launched right, Corona Premier and the Corona Familiar product are examples of NPD that we weren’t in a position to do up until now, but now we are extremely well positioned with two big breweries Nava and Obregon fully on stream as well as a third brewery well underway. So, we're very optimistic about what both we can do now with yet another brand that we think is going to be a big growth driver of Pacifico and what we can do with NPD, and the business which appears to be very successful at least in test markets thus far.

Dara Mohsenian: Okay.

That's helpful and then David on the beer margin side, the expansion of 60 basis points implied by the midpoint of the initial fiscal '18 guidance, it still seems conservative despite the depreciation increase when you consider the historical expansion and all the positive factors you mentioned like the glass savings pricing, topline leverage moving off ISI etcetera. So, it seems like those positive factors would overwhelm significantly the depreciation increase. So are there other prohibitive factors limiting the margin upside as you look to next year beyond the depreciation or are you just being conservative this early in the year.

David Klein: I think of our $2 billion of COGS and beer, there are just a lot of moving parts, things that swing your way things that move in the other direction. I want to just make clear that our guidance implies a peso rate of about 20 pesos to the dollar right, and we know that's running a little bit less than that.

It's in the high 18s as we sit here today. So, you I think it's -- I think we're suggesting continued margin expansion, but I think we're just being prudent at this point in the year.

Dara Mohsenian: Okay. Thanks.

Operator: Our next question comes from the line of Judy Hong of Goldman Sachs.

Judy Hong: Thank you. Good morning.

Rob Sands: Hi Judy.

Judy Hong: Hi. So, I guess just going back to the beer volume, certainly the Nielsen IRI could be very pretty volatile, but it looks like your depletion growth has also been pretty volatile in the last few months.

Cagney had talked about 8% depletion for the fourth quarter. You came in at 6.2%, which implies obviously a pretty big slowdown in February and then March looks like it's got better. So just a little bit of color just in terms of what's going on, obviously, the broader industry has been pretty soft, but certainly the weather is having an impact, but any color just in terms of the cadence of your depletion growth and then what you've seen so far from a March perspective would be great.

Rob Sands: So yes, Judy, as it relates to our fourth quarter performance, I would say that February ended up a little softer than we had expected at the time, and I think there's a danger in watching the week-to-week or even month-to-month depletions. I think if you look at our overall trends in the business, we continue to gain share in the business at about the same rate as we have been over the last 12 to 24 months.

Clearly total beverage alcohol has slowed down a little bit over the past 12 months, but that seems to be mirroring what's happening in the broader CPG category as well. So, we feel pretty confident to be sitting here in early April and putting out I think some pretty strong guidance for our fiscal '18. So, despite the volatility that we're seeing, we're pretty confident in our ability to deliver these numbers.

David Klein: And I guess I'll just add Judy that what's becoming I think obviously to everyone is that in the short term, sort of as a result of where holidays fall, the number of sell days in a particular month etcetera, there's a lot of fluctuation in the short-term that can affect short-term volume, whether you're talking depletions or otherwise. And I would encourage everybody to sort of focus on stacked results as opposed to focusing on these very short-term numbers, which there is a lot of volatility associated with those short-term numbers and you can see it in December numbers, which were across the industry not very good okay and is driving a lot of the slowdown.

And in December basically what you had were holidays falling on weekend and instead of the middle of the week. So instead of people drinking twice during the week, they were only drinking once during the week on the weekend. Okay, this really affect things. In March okay and April, you're going to see a shift which by the way I think this will affect wine and spirits more than it will beer, you're going to see a shift of Easter into April this year, right, mid-April this year from March last year. So that's really going to affect the numbers that you're going to be looking at on a short-term basis and this is especially in wine and spirits because there tends to be more of a wine and spirits drinking holiday than a beer drinking holiday, but I think you have to look at those stack results now.

In our case right, fourth quarter yet depletions in beer looked a little lackluster and then you look at first quarter of the calendar year and I would say everything basically bounced right back to be very consistent with the growth that we're expecting throughout the remainder of the year and we see nothing at all right now that would suggest to us that just on a general proposition whether it's across -- whether it's beer or wine or spirits, maybe talk about the industry as a whole, I think that we're fairly confident that you'll see things reverse to the mean as it relates to industry growth across TBA and I think on our own growth, we see nothing inhibiting us from achieving our guidance across the wine, beer and spirits portfolio, which I think will be very strong continued results.

Judy Hong: Okay. Got it. And then secondly, just on beer pricing outlook, so I think you're sticking to the 1% to 2% pricing for 2018. There is obviously been some pricing permission in the high end within Ultra.

How do you think about your ability to get to that 1% to 2% pricing? Have you taken some of that pricing already in some of your markets and sort of your comfort level on that front?

Rob Sands: Sort of a same story. We see no innovation or issues in achieving our pricing guidance. You point out every quarter and basically every year we're talking about some skirmish that has occurred especially in beer the constitutes some tea leaf reading, right. So whether it's low prices on Mic Ultra, somewhere for some reason or whether last year it was the giving away of goose CAGS in the Northwest, there is countless -- there is countless examples of this stuff all the time, but fundamentally speaking we don't see pricing in the beer market portending anything other than that guidance that we had given and what we expect which is 1% to 2% pricing, which really will take very strategically market by market, brand by brand and again we're confident that we'll achieve that goal.

David Klein: And Judy you know that pricing in beer for the most part is taken in the fourth calendar quarter of the year right.

So, the pricing that -- the preponderance of the pricing that we're counting on to achieve our guidance is already in the market.

Judy Hong: Yes. Got it. Okay. Thank you.

Operator: Our next question will come from the line of Nik Modi from RBC Capital.

Nik Modi: Yes. Good morning, everyone. A couple collections, just first David on the guidance on the peso, is that inclusive of hedges, just wanted to clear that up? And then the broader question is so certainly CPD volumes across all industries have slowed lately and I'm just curious you guys are in kind of a unique position because you're gaining so much market share, but I am just curious on your overall take on what you see with the consumer. I understand the timing of calendar and holidays and things like that, but it looks like something else is going on, I would be curious to your thoughts.

David Klein: So, Nik, I'll take the peso question and then Rob can respond on the market, so we're just saying that we're targeting in our guidance around the 20 pesos to the dollar. That includes our hedge program that's already in place and I would say that we're probably about 50% hedged on the peso.

Nik Modi: Got it.

Rob Sands: So, Nik, on the consumer side, I think that we definitely saw some softening in consumer confidence in the fourth quarter and efforts of that are highly speculative, but I would say it's certainly around a lot of the political uncertainty and what has transpired across a lot of areas in that regard. On the other hand, as we move now past the first quarter right, we're seeing some signs of increased consumer confidence, the jobs number, which came out very recently was higher than expected and by the way, we track things like the correlation of various statistics like job growth, like GDP against our beer performance over long periods and I think a good example of that job growth tends to be a positive for our business and is GDP by the way tend to be a positive for our business.

So, as we see some of these things improve, I think that you're going to see consumer confidence improve, but you only have to sit around and watch the news to understand that there will continue to be a lot of political uncertainty for the next I guess nobody can, the next is uncertain. The next period of time. Or I think you can say that we are totally uncertain about how long there will be political uncertainty.

Nik Modi: Fair enough. Thanks a lot.

Operator: Our next question comes from the line of Vivien Azer of Cowen.

Vivien Azer: Hi. Good morning.

Rob Sands: Hey Vivien.

David Klein: Hi Vivien.

Vivien Azer: So, Rob, I really appreciate your commentary on a bunch of the transitory factors that are impacting both your results and Nielson as well as the more constructive commentary on some of the March data. As we kind of look back on fiscal 4Q, is there any way to quantify any of that just opposing California where the weather was really bad relative to your national trends. Anything to help us understand the magnitude of some of that option.

Rob Sands: It's all about December right. December was a weird month.

If December had been normal, the results would have been normal. That's basically the quantification of everything. So yeah, I told you and I'm sure you're already aware about the holidays and how they fell in December versus the previous year. You brought up the weather, I didn't. I don't like to talk about the weather because the one thing that we know for sure is that there's always going to be weather okay and we're in the very fortunate position of not having necessarily to reverse to the weather okay as our excuse for everything.

So really, I think it falls back to December and you could basically normalize December and you would've ended up with normalized results. As things have thus proved themselves to be the case, following December and looking at the first calendar quarters. And then the December thing was across wine beer and spirits. So, I think as it related to our portfolio in particular we've given our guidance and we're confident on our guidance for the year of 2018. So, I think that that's really where the proof is right.

It's in the guidance and looking at the first calendar quarter on beer. And the IRI to some degree as well which has only constituted 50% of the business, but it remains a fairly decent indicator and IRI looks good.

Vivien Azer: Understood. Thank you very much.

Operator: Our next question comes from the line of Pablo Zuanic of SIG.

Rob Sands: Hi Pablo.

Pablo Zuanic: Hi. Look just two big question, one, can I just only drill a little bit deeper on the state of the consumer, particularly your Hispanic consumer, you say that that represents about 40% of U.S. sales. Just give us any color you have there.

Obviously, you have better pulse of the consumer and most bigger companies giving your exposure there, that would be helpful. I understand you're touching the political situation, but just expand on that. And the second question in terms of your relationship, if I just briefly on the relationship with the wholesalers, obviously, distributers they are the gold network, must be very happy with your performance right, you're driving the industry growth, you made good profit margin. But here you are bringing more SKUs to them. You said 70% of your growth is going to come from distribution.

You're also bringing balance to them. Is that straining in any way the relationship with the distributors especially when you're counting on distribution being such a big distribution expansion being such a big driver of your growth. Thank you.

Rob Sands: Yes. So, I'll take both questions.

I think that as it relates to consumer confidence, as you said drilling down on that, if you look in the fourth quarter in particular I do think that we saw a disproportionate negative impact on Hispanic consumer confidence and that's for all of the obvious reasons I think, which is related to all the very unfortunate rhetoric with regard to Mexico coming out of the Trump administration and the news. Now that said, I would say that the Trump factor has diminished somewhat and therefore consumer confidence among Hispanics has probably increased a bit with all of the latest rhetoric, which is I wasn’t able to get ACA repeal and replace through that's brought a lot of uncertainty around what they are or are not going to be able to do relative to tax reform. I'm sure you saw the comments from the Secretary of Homeland Security, Kelly over the last two or three days basically saying that there isn’t going to be a wall built that will stretch from border to border. Maybe they’ll put up a couple of fences and this and that, but they’ve completely backed off or at least Trump's cabinet has backed off of the long rhetoric which I don't think that the wall is one of the big factors that we're particularly concerned about but it is a concern to our Hispanic consumers and does relate to the consumer confidence. So, I think on the Hispanic front, especially Mexican Hispanic, I think the fourth quarter things were a bit disproportionately poor, but I think that it's improving because as things continue to move forward it becomes more obvious to everybody that a lot of this stuff is rhetoric and sort of business as usual in Washington as it relates to elections and election promises versus whatever -- what actually happened.

So many do have the actual hard statistics like jobs being better than anticipated in the recent jobs report. So that my commentary on that. And then your second question was on yes, relationship with wholesalers, now relationship with wholesalers is not being strained in any way, shape or form. Our relationship with our wholesalers on the beer side couldn’t be better. In fact, we are 100% of their growth okay, but Constellation okay, their businesses would be going backwards and their profits would be going backwards.

Where their growth driver and in many instances today, we are their largest profit contributor period. As you know, we're largely or at least the majority of our distributors are Miller Coors houses and many of the major ones we moved ahead of Miller Coors in terms of profit contribution and as I said, we're providing the growth. They're very excited about new high-end products from us and in fact dying for it is the truth of the matter. And then you take a look at a product like Ballast Point, our distributors have not given up in any way, shape or form on the craft strategy, on the craft category. I would say that they are beginning and I think this is a good thing not a bad thing, just like the retailer to take a more measured approach to it and realizing that it doesn't make sense for them to carry every SKU under the sun and that they have to pair down in that regard.

But clearly as business people both at retail and at wholesale, what they're thinking is we're going to pare down to the brands that are supported from an execution, from merchandising, from an advertising perspective by companies that have the wherewithal to invest behind these brands and they're basically going to get rid of all this no-name stuff that they know that is fly-by-night and the company is behind them don't have the wherewithal to support the brand. So, I think that shake out is going to work greatly to our favor and then I think with -- they see that we're bringing resources to this that the other competitive brands can't necessarily bring to the party. Some can. Some can't. And when I say resources, it's resources like our national accounts connections, team, hey just -- it's our wholesalers, right, it's a virtuous circle.

We bring to them the products that are driving all of their growth, they turn around and focus on the products that are driving all of their growth, which causes those products do better than the other products. So, I think that Ballast Point bodes well with and then the positioning of Ballast Point right, the premiumization of it right, this is just, this is exactly what the beer guys are looking for are true premium, high margin beer products and that's both our wholesalers and our retailers. So, I believe they think that it's an exciting proposition and they will continue to drive that business.

Pablo Zuanic: All right. Thanks.

That's very helpful.

Operator: Our next question comes from the line of Mark Swartzberg of Stifel Nicolaus.

Mark Swartzberg: Thanks for taking the question. Good morning, everyone. I guess two questions, one for you David and a broader question for you Rob, but there was an impairment charge David of $37.6 million in the quarter.

So, what was that for? And then Rob if you think about your wine and spirits business, which is performing well and better than it did historically, you have a little bit bigger business in spirit. I'm wondering if that's aiding distribution for your wine brands and if you can give us an update on your appetite for additional spirits bolt-on and then on the wine component of your business, how would you characterize the promotional environment generally and your ability to deal with promotion against your brands from competitors and why

David Klein: So, Mark on the impairments, that's really just a continuation of our premiumization strategy. So, we had some wines in particular mostly sub $5 labels. We didn't sell a lot of cases of brands like Tallas or Marcus James that we elected to discontinue in order to shrink the number of brands in our portfolio and drive the premiumization trend. So that was just good housekeeping I would say, from a skew management perspective.

Mark Swartzberg: Fair enough. Great.

Rob Sands: So, Mark, to your questions, one spirits distribution and how that relates to wine, I would say it's separate largely and they were not. There is no strategy here to use spirits distribution to somehow drive wine distribution. In fact, we created a separate spirit salesforce to give more focus to our spirits business because yes, we think that that's a great both growth and margin driver in the future for us, but our early trends use spirits drive wine distribution or necessarily vice versa, except to the extent that we do have a TBA approach and when we are dealing with our major retail customers particularly the chains and mass merchandisers and clubs right where business is gravitating and we're talking to the people who alcoholic beverage roles up to, which there is usually an alcoholic beverage person, we're certainly taking advantage of the fact that across TBA, total beverage alcohol, we're providing all their growth or a large percentage of their growth and we're providing more profit to them largely than anybody else in the industry.

So this is how we take advantage of our position across beer, wine and spirits with our major customers in that TBA continues to be the most important category in all of retail and especially with the big chains clubs and mass merchandise where that business is also gravitating to is the best profit provider, if you look at their top categories, which are CSR, carbonated software and CRDs and tobacco and alcoholic beverages right, well alcoholic beverages is really their stand out in terms of growth and profitability and dairy right is another category. These are all largely declining, highly commoditized categories versus beverage alcohol. So, we do use our TBA position to drive distribution, but as it relates to wine and spirits not really, but the big opportunity does exists for us with spirits and our spirits portfolio we intend to drive that. And yeah if we see any tuck-in acquisitions for spirit that we make sense, within our disciplines right, we haven’t put aside any element of our financial discipline on anything that we do nor are we going to. Okay.

So, we will be selective if tuck-in opportunities. We're not going to -- our financial discipline on some theoretical basis tied around strategy and that isn’t quantifiable into our financial discipline. So, you can fundamentally count on that. And then you talked about promo, which…

Mark Swartzberg: Can I just interject real quick on the promo just to put that aside for a quick moment, with the cash flow profile of the business being what it is and the dividend increase and the repo you completed over the last fiscal year, I would think that if I'm in your shoes, the ability to pick up the pace of bolt-ons whether they're in spirits or wine or segments of beer is picking up right. So that what's driving my question still focused on spirits, but am I right to think that your attitude to pick up the pace is picking up because of the nature of the cash flow situation?

Rob Sands: That's an interesting question and my answer is that in terms of our capital deployment strategy okay, it probably hasn't changed or I should say and have chanced okay, as we continue to see our cash flow generation build, we are going to strike the same kind of balance that we have struck between paying down debt and keeping debt levels within our target of the mid three's okay.

We will also continue to focus on returning value and dollars to shareholders, whether it's through things like our dividend increases or more stock repurchases okay to offset the normal dilution that occurs in our business annually and tuck-in acquisition. So, I don't see much changing with regard to any of those three things and we will continue to balance it and then on the tuck-in acquisitions specifically to your question about spirits, that's more a function of deal flow right, like what good things are there out there that will become available that meet our financial discipline like that's a very unclear -- there is no clear answer to that question. So, if the deal, if all of a sudden lot of things became available, again balancing those three things, the debt flow, our ability to offset dilution and return money to the shareholders proving back stock, we will look at all of the good deals that are strategic for us, both financially and otherwise in the portfolio as they come along. And I say strategic for us, what do I mean by that? Well that's our financial discipline as number one and then number two right, it's got to be high margin, high growth okay. We're not interested in much anything else, but that is in high margin, high growth okay where we wouldn't just do a financial deal on something that was something that did fit into the portfolio and what we're trying to do with the overall business and portfolio.

So, it's got to be in a category to be high margin and high growth. There is large categories in beverage alcohol. There is insignificant to favor at the current time and we're probably not going to go there nor are we necessarily going to chase the absolute latest and greatest at any moment in time on the other side of that. So, it's all a big balance.

Mark Swartzberg: Very, very helpful and on wine, I was just -- the short version, the promotional environment, how would you characterize it as what you're seeing vis-à-vis your portfolio or what you're looking at into the coming fiscal year?

Rob Sands: Well when you think about promotion because there is so much promotional activity in wine, I think that we tend to think more about it in terms of net price realization whether it's through promo or frontline pricing.

I would say that in terms of net price realization, wine is some robust than it has been in the past meaning in very simple terms whether it's through reduced promotion or for better frontline pricing, there's a little bit more pricing power and pricing, positive pricing activity, increased pricing in wine than there has been in the past. And I think that even in our portfolio, we're probably this year planning on taking more pricing than we have even in previous years. So, I would say that's getting to be a fairly robust environment. Everybody is sort of realizing that often the difference between a great business, a good business and a bad business is around how much pricing power there is in the marketplace. And wine continued to preimmunize at a very fast rate and with the premiumization and focus becoming now more around wines priced between $15 and $25 as opposed to be between $5 and $10 right, the price sensitivity on all this stuff is somewhat diminishing right because if you're looking at a bottle of Meiomi or other products that are now getting to be in the sweet spot of the commercial part of the business all of a sudden $0.49 is critical as if you were talking about a $5.99 $7.50 or $0.99 is a gigantic percentage.

So, I think a positive news.

Mark Swartzberg: Great. Thank you, Rob.

Operator: Our next question comes from the line of Andrea Teixeira of JPMorgan.

Andrea Teixeira: Hi.

Thank you. And congrats on the results. So, I would like to go back to beer, it sounds impossible, your beer gross margins expanded nicely to all-time highs of 52% and you also you also had an EBIT margin that grew nicely. So, you're probably driven by this new capacity and the end of the supply agreement, but would you expect us to see more reinvestment in SG&A as you alluded to in the prepared remarks across beer and wine as well and your guidance for the whole company actually implies some of the investment, but I also like margin, gross margin expansion and it's likely EBIT expansion. So how should we think of the balance of gross margin, operating margins going forward, especially as you have tougher competitors into the year and related to this if you can expand on the beer utilization I know you probably also have some higher fixed cost.

So, do you expect any volatility as we see going through the quarters? Thank you.

Rob Sands: Yes. So just thinking about margins kind of at the EBIT margin level Andrea, we do believe that will have some benefits during the years, as I said earlier from FX and some benefits of -- some benefits of coming off of the ISA and in glass sourcing and so forth, offset by depreciation and one-time line commissioning cost because there is still going to be some noise in our COGS as we bring more capacity online. I think so you're going to see a little expansion there. I would say that from an SG&A and marketing perspective, you can assume that that's a percentage of sales, that will remain consistent year-over-year.

I will say however considering a lot of other consumer products companies talking about the work that they're doing to take cost out of their business, we're doing all of that same work with a view of being able to redeploy resources to initiatives that are going to continue to drive the topline growth of our business. So, we are getting some benefits on the SG&A and marketing line, but the benefit is really more effectiveness and more, more topline growth as a result of that work. And then from a capacity utilization standpoint, I would say that we're going to be flat out at Obregon and Nava, as we go through the summer selling season. So, I don't expect that we'll see fluctuations in our cost as a result of utilization issues on overhead and in fact our ops guys are really good, but I don't think we'll see I don't think we'll see a lot of spare utilization that they have to try to manage for a couple years yet.

Andrea Teixeira: Okay.

Thank you. And then for any spirits if I can just add my second question on how -- what are you seeing there because we didn't have a chance to discuss and so organically we're seeing the continuous trends on that category?

Rob Sands: Yes. So, we're continuing to see strong growth in the categories that we're playing in spirits right. So, our brand spirit Tequila continue to do well. Our brand in particular continue to do well and the recent IRI High West is up 79%.

So, we're seeing good trends in the spirits business as I said in particular in the place where our newest brands like Casa Noble and High West play.

Andrea Teixeira: All right. Thanks David. Thanks Rob.

Operator: Our next question comes from the line of Rob Ottenstein from Evercore.

Rob Ottenstein: Great. Thank you very much. A couple questions, so in the fourth quarter there was a little bit less than a 300-basis point difference between the depletions and the shipments, what does that mean for the first quarter and maybe you talk a little bit about where inventory levels are and what we should expect between shipments and depletions in Q1?

Rob Sands: Yes. So, we don't necessarily manage quarter ends all that tightly in beer because the inventory turns pretty quickly. We keep around 30 days of inventory on hand at our distributor on average across the portfolio and we're roughly in line with that at yearend maybe we're up a little bit, but that's to be expected going into this summer selling season.

So, we're right where we want to be and we don't -- we're not purposely building inventory at distributors, again we like that 30-day mark.

Rob Ottenstein: Terrific and then could you talk a little bit about Obregon in terms of its impact in the quarter and in the following year in terms on the income statement and your margins? Is it having a positive impact, negative impact, how should we think about it?

Rob Sands: I would say that Obregon's probably it's thin line, it's not accretive or dilutive to our margins. We get some benefit of being off the ISA. We get some mile freight benefits, but to the West Coast shipments, but it's a more costly facility in general to produce in for a whole bunch of reasons, which we're going to try to address over time. So, I would say in the near term it's about a wash.

Rob Ottenstein: But it sounds like you have a pathway to actually make it accretive over time.

Rob Sands: I think what you'll see over time is you'll see us, yeah, yeah, right and then what we're really looking forward to the date when we actually have three facilities functioning and we can optimize our production runs through those facilities to really try to drive the best possible margins. But at this point we're producing and selling all the beer that we can get out -- we're selling all the beer that we can get out of our production facilities.

Rob Ottenstein: Terrific. Thank you very much.

Operator: Our next question comes from the line of Laurent Grandet of Credit Suisse

Laurent Grandet: Yes. Good morning, everyone and congrats on the strong quarter. The first one is very quick, its confirmation on tax. You guided 22% tax rate for the fiscal '18, is that the new run rate. I understand there will be more volatility here or is it just for full year '18.

That's for your David.

David Klein: Good question, Laurent because we talked about mid-20s at our Investor Meeting and I would say that the 22% is a bit of a refinement. So, we would expect that we go forward in that 22 to 25. So, it's kind of the low-end of mid-20s. But keeping in mind the point that you made, there will be more volatility because of stock-based comp.

Laurent Grandet: Okay. Thank you. And my second question really is more for your Rob, you mentioned 70% of the gross would be coming from distribution in the beer segment. Can I have a bit more granularity on this, what would be coming from Corona Can and Modelo versus what would be coming from brands like Pacifico or Ballast and then what's the balance of this 30% shelf space, you're gaining from this year or is it something else, thank you.

Rob Sands: Sure.

So probably the biggest opportunity for growth is in Modelo Especial where there is a lot of room for distribution growth to get a brand like that up to say the same distribution levels as Corona Extra. So, the focus will be on building Modelo Especial distribution. And then Corona cans is another huge opportunity for distribution growth as well as, as I said some of the other products like Pacifico and then Ballast Point is hardly -- hardly has distribution outside of California. So, there's a big opportunity to drive the growth in Ballast Point through targeted distribution in other states. So, bottom line is sort of across the portfolio with probably the exception of Corona Glass 12 packs, there's a lot of -- there's just a lot of distribution growth opportunity and distribution growth is the primary way to drive volume growth.

Laurent Grandet: And then about the balance of the 30%, is it shelf space you're gaining from light on economy or is it something else?

Rob Sands: That would be velocity. It increases in velocity on brands that are getting distribution and becoming more popular. So, you'll see both happen.

David Klein: Yes, and a lot of that when we do our regression analysis around a lot of that comes from incremental, or more effective media spend as well as some of -- some demographic and economic tailwinds.

Laurent Grandet: Okay.

Well, thank you very much Rob and David, thanks.

Operator: Our next question comes from the line of Bill Chappell of SunTrust.

Bill Chappell: Thanks. I guess officially, good afternoon. Just two quick questions.

One, you said on Corona that we just finished the fifth year of double-digit increases on advertising and marketing. Will we have a six-year or are we starting to get to the equilibrium or have it where you want to be in terms of behind that brand?

David Klein: We continue to get outstanding returns on investment from marketing spend on Corona and so we'll continue to drive that brand and in the context of our total SG&A remaining constant as a percent of net sales, I just want to be clear that we're going to continue to look for ways to be more efficient with our spend across that whole SG&A spectrum so that we have money to invest in brand growth.

Bill Chappell: Okay. So, it implies double-digit for the portfolio while G&A gets maybe more efficient.

David Klein: Right in aggregate and if you look at our beer business and our beer business guidance has this double digits, it implies everything else stays the same, we'll be getting that kind of growth in our marketing spend.

Bill Chappell: Okay. And then one other, I might have missed this but the outlook on great cost this year and what impact it's having on margins?

David Klein: I think that that we expect great cost to continue to be very stable and we're not anticipating any material impact on margin. That said, you just don't know right now because until you get to the point where terms can be measured and even that's fairly unreliable because there is a lot of weather that can occur between even then and harvest you don't know what the size of the harvest is going to be, which is what tends of affect great pricing. But we're not expecting anything unusual. I would doubt very seriously that we're going to see anything out of the ordinary on great pricing and therefore its impact on margins this year.

So, I would say it's something to particularly focus on.

Bill Chappell: Got it. That's helpful. Thanks so much.

Operator: Our next question comes from the line of Tim Ramey of Pivotal Research Group.

Tim Ramey: Thanks so much. Rob, I know you don't like to talk about weather but there are three influences here coming up for some of the forecast for Cinco de Mayo as 81 and Sacramento, so that looks good, but it's been really rainy for about break probably difficult to get machines into the field and that's a negative and then groundwater and reservoir levels are good and so that's a positive. Is there any takeaway there? You just had touched on that a second ago, but thoughts.

Rob Sands: Tim, you're not really supposed to use specialized wine knowledge on these conference calls.

Tim Ramey: Yes sir.

Rob Sands: But the answer really continues to be no different than what I think you're going to see different -- you're going to see different things happen in different regions and obviously, business and where we source grapes from is so diversified that we're going to see some ups and downs. It could be tight in Napa. You take a brand like just high-end peanut brand Meiomi we're sourcing, the great thing about Meiomi right, it's a three Appalachian brand meaning it comes from three different Appalachian which gives us a lot of flexibility with regard to the sourcing of those grapes and then obviously, we're continuing to source a lot of grapes from the Northern Central Valley from the central moderate. So, I think you're going to see some balancing there meaning you'll see some tightknit in some areas and you'll see some of the opposite in other areas and obviously also in the Pacific Northwest that's also important to us now as well as the brand like Charles West and Charles Smith, which is growing really high double-digits. And therefore, we're using a lot of the Washington supply right now, which was part of that deal, which we locked up, a lot of the Washington supply of premium wine grapes with the Charles Smith deal, which was one of the reasons that we thought it was a good deal and it's turning out to be a particularly good deal with Kung Fu Girl Riesling making capital 100 in the wine spectator and that kind of stuff really drives the growth of brands like that.

Tim Ramey: Okay. David, just two quick ones, any single point estimate on DNA for the total company for 2018 and then also on the new share compensation standard that increases shares outstanding slightly I believe and your share count forecast was a little higher than what I thought it would be. Can you quantify what that would be?

David Klein: Yes, so our share count estimate is really our best estimate as we sit here today right. So, it's inclusive of all of those points. And then Tim as it relates to depreciation and amortization I would say, you can think about the rest of the business as being fairly consistent, but we said that in the beer business that that number would be up about 50% year-over-year.

So that's really the only change.

Tim Ramey: Okay. Thanks so much.

Operator: Our final question comes from the line of Stephen Powers of UBS.

Stephen Powers: Hey great.

Just two quick one’s for you David. First just around the beer margin discussion, is there any way you can help better dimension the benefits you've seen with Glass Furnish Two coming online at Nava and what you expect for Glass Furnace Three and Four as you look forward?

David Klein: It's kind of hard to do in a real simple way right because as I said on $2 billion a COGS and mid $4 billion of sales and we can have $10 million, $15 million swing $20 million swings in both directions over a number of items. And so, there's definitely a benefit for bringing on furnace two and three and ultimately furnace four, but I think it really gets kind of absorbed into the overall margin numbers over time, because we're really talking about $15 million swings as opposed to $70 million when you bring up the furnace. You can't see those if you look at our NCI charge, on a year-over-year basis, we expect that number to double on a full-year basis to about $10 million and that just represents incremental profitability in our glass joint venture.

Stephen Powers: Got it.

Okay. That's helpful. And then finally on CapEx with the billion you're assuming for beer this is in fiscal '18 I believe that leaves $500 million to $600 million remaining across '19 and '20 this is what you said previously. Just want to confirm that's still the three-year aggregate assumption? And then as I think about that incremental call it $500 million to $600 million, should I -- should we consider that to be more or less evenly split across '19, '20, or is it going to be frontloaded loaded or is it too early to tell.

David Klein: So, the numbers that you quoted are roughly right.

What I would say is that when we talk about a billion first of all, there's a range in that billion we just repaid. We picked kind of a point in there and I would say that that isn't all -- that's our entire beer capital number right, it's not necessarily all build out. So, the number over the next couple years is probably a little bit higher than the $600 you quoted I think, but it's not going to be material in the grand scheme of things.

Stephen Powers: Okay. That's fair enough, just wanted to clarify.

Thank you.

Operator: And that was our final question. I'll now turn the floor back over to Rob Sands for any additional or closing remarks.

Rob Sands: Okay. Well thanks everyone for joining today's call.

As we wrap up our discussion of the fourth quarter and fiscal 2017 results, I want to emphasize how pleased I am with the excellent performance across all of our businesses. Our fiscal 2018 guidance shows we're very confident in our abilities to sustain profitable growth and we are firm in our commitment to build shareholder value. We look forward to the next time we speak with you in early July when we will share the results of our first quarter for our new fiscal year. Before then we hope you'll choose some of our fine products for your Spring celebrations including Cinco and Memorial Day weekend and of course enjoy them responsibily and speaking of Cinco, look for us at the New York Stock Exchange and on May 05 as we officially kick off our summer selling season by ringing the closing bell. Thanks, everybody and have a great rest of your day.

Operator: Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.