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.

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.

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…

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.…

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

Hey good morning, guys.

Hey Dara.

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?

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.

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.

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.

Okay. Thanks.

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

Thank you. Good morning.

Hi Judy.

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.

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.

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.

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?

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.

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.

Yes. Got it. Okay. Thank you.

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

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.

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.

Got it.

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.

Fair enough. Thanks a lot.

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

Hi. Good morning.

Hey Vivien.

Hi Vivien.

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.

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.

Understood. Thank you very much.

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

Hi Pablo.

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.

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…

All right. Thanks. That's very helpful.

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

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

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.

Fair enough. Great.

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…

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?

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.

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?

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.

Great. Thank you, Rob.

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

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.

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.

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?

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.

All right. Thanks David. Thanks Rob.

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

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?

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.

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?

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.

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

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.

Terrific. Thank you very much.

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

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.

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.

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.

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.

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

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

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.

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

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

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?

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.

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

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.

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?

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.

Got it. That's helpful. Thanks so much.

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

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.

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

Yes sir.

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.

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?

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.

Okay. Thanks so much.

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

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?

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.

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.

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.

Okay. That's fair enough, just wanted to clarify. Thank you.

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

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.

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