Welcome to the Constellation Brands’ Third Quarter 2019 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 questions. Instructions will be given at that time. I will now turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations. Please go ahead.

Thanks, Brian. Good morning and welcome to Constellation’s third quarter fiscal 2019 conference call. I'm here this morning with Rob Sands, our CEO, Bill Newlands, our President and COO and David Klein, our CFO. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company’s website at www.cbrands.com. Please refer to the news release and Constellation’s SEC filings for risk factors, which may impact forward-looking statements that we make on this call. Before turning the call over to Rob, similar to prior quarters, I would like to ask that we limit everyone to one question per person, which will help us to end our call on time. Thanks in advance. And now here's Rob.

Thank you, Patty. Good morning and Happy New Year to everyone. I hope you enjoyed the holidays and got the chance to enjoy some of our fine products during the holiday season. As I reflect on 2018, I'm reminded that I'm very fortunate to be part of the exciting dynamic at ever-changing beverage alcohol industry. I'm also proud of the fact that Constellation continues to be one of the best growth stories in the industry, led by our remarkable high-end beer business, which is generating double-digit top and bottom line growth. Overall, our business is strong and has excellent prospects for the future and for future growth. And that's why I believe it's the right time to hand over my CEO responsibilities to Bill Newlands, while I assume the role of Executive Chair at the beginning of our next fiscal year on March 1. Bill has an excellent understanding and appreciation for the values and strategy that have made Constellation Brands one of the top-performing S&P 500 companies over the last decade. Since joining Constellation in 2015, Bill has made a significant impact on our company, as he's assumed increasing levels of responsibility finding ways to leverage our unique capabilities as a leader in total beverage alcohol and reinvigorating our innovation engine. The company is in good hands with Bill at the helm, and I look forward to continuing to collaborate on key strategic initiatives as I transition to my position as Executive Chair. As such, Bill will be taking the lead with David and the IR team on all future investment calls – investor calls and meetings. Over the years, I've valued and appreciated the ideas, suggestions, and feedbacks I've received from the investment community, and I'd like to thank you for your ongoing support. I'd like to mention that my brother Richard and I recently acquired in excess of 1 million shares, to take advantage of the tremendous value that Constellation's stock currently represents. With that said and as a precursor to my transition to Executive Chair, I believe it's the appropriate time to turn the call over to Bill, who will review our business results for the quarter. Bill?

Thank you, Rob. I'm honored to be selected as Constellation's next CEO and I couldn't be more excited about the opportunity to lead one of the best growth stories in the CPG category. As many of you are aware, in Rob's tenure as CEO, Constellation has delivered an incredible total shareholder return of almost 800%. Rob, that's quite a legacy and certainly a tough act to follow, so congratulations to you. Let's now turn to the business. I have five key takeaways that I would like to emphasize on this morning's call. Number one, Constellation's beer business continues to outperform the U.S. beer market by a wide double-digit margin. Number two; we have plenty of beer capacity in Mexico to meet the incredible demand for our products well into the future. Number three; we're disappointed with the performance of our wine and spirits business, as we're facing challenges with the low end of the portfolio. As a result, we've changed our guidance for the year and have taken action by pursuing strategic alternatives to optimize the value of that business. I personally have assumed short-term responsibility for the business to accelerate this effort, and we expect to have more say in the coming months as a final outcome is determined Number four, Canopy Growth is committed to achieving their CAD 1 billion revenue run rate target within the next 18 months. And number five, we plan to provide $4.5 billion in cash returns to shareholders within the next three years in the form of share repurchases and dividends. So let's take a moment to discuss each of these points in the order that I outlined them starting with beer. High-end beer is driving virtually all the U.S. beer category growth and Constellation as the leader in the high-end beer is…

Thanks, Bill, and good morning, everyone With a lot of volatility in the equity markets and knowing that our investors must continue to assess where they can get the best returns, I want to offer you why we believe that Constellation provides the best combination of growth and cash returns to shareholders within the CPG space. We've grown comparable basis diluted EPS at almost a 20% CAGR over the past three years using the midpoint of our updated FY 2019 guidance. We remain committed to our algorithm of a 10% comparable basis EPS growth CAGR on a mid to high single-digit net sales growth CAGR over the medium term. This may not be straight line performance, given changing consumer preferences and economic volatility, but we're confident we'll deliver on this commitment. In addition to our growth prospects, we believe Constellation is also a cash return story. We plan to return approximately $45 billion to our investors over the next three fiscal years in the form of dividends and share repurchases. This goal is supported by our historically strong cash flow generation and the ramping down of the CapEx needs in our beer business. It assumes we quickly delever back into and operate within our 3.5 times targeted leverage ratio range, as we remain committed to maintaining our investment grade rating. It also assumes we exercise the Canopy warrants that expire in November of 2021. Our Canopy investment is like a ventures investment, which positions us to use our capabilities in building brands in a regulated industry to take advantage of the legitimization of an emerging $200 billion global industry. The impact of Canopy on our income statement will be reflected as non-cash equity and earnings from an unconsolidated investment. This will not limit our ability to return cash to our…

Thank you, sir. [Operator Instructions] And our first question will come from the line of Dara Mohsenian with Morgan Stanley. Your line is now open.

Hey, Dara.

Hey, good morning, guys. So my question is around the trajectory of beer depletions going forward. Fiscal Q3 was a bit softer than we've seen from you guys historically at 8%, but it sounds like you're off to good start so far in fiscal Q4. So help me understand that slowdown in Q3? Was it more just industry softness is dissipating a bit now? And just any thoughts around if your forward beer depletion growth can hold up if the industry trends remain softer would help? And then specifically on the innovation front going forward, can you give us some detail on if you think Premier can grow next year, year two post the launch? And the reasons why? And just any frame of reference for how big you think Refresca can be next year? Thanks.

Sure. Dara, a couple of things on the depletion trends. As I mentioned during my prepared remarks, our depletion trends in December were actually up higher than our year-to-date rate which was at 9%. So we're still very comfortable with the growth profile of our business. What's also important to note is that our share gaining performance during that quarter remained consistent with our share gaining performance over the course of the year. So our delta to the market remained very, very strong and we're confident that this is going to be a continuing trend. Relative to innovation, we think there's a lot of runway yet to go in Premier. We continued to see accelerating velocities in that business, and we expect that that's going to be an important part of our overall mix for our Corona brand family going forward. Lastly, Refresca, well it's a little early to tell. We're extremely excited about this. Our research and our testing that we've done on Refresca suggests this will be over 80% incremental to our core franchise and will bring new customers into our business. So we think this is going to be a tremendous launch that will occur during the early part of our next fiscal year.

Thank you. And our next question will come from the line of Bonnie Herzog with Wells Fargo. Your line is now open. Q – Bonnie Herzog: Thank you. Good morning. A – Rob Sands: Hi, Bonnie. Q – Bonnie Herzog: Hi. I had a question on beer gross margins. I guess, I'm still trying to reconcile like you guys said during your last quarterly call in terms of cost and things being more transitory, especially transportation. And then you also talked about several COGS improvement initiatives that were underway to help offset some of the cost headwinds. So could you give us an update on those initiatives? Did something change with timing since they didn't really help to offset some of the gross margin headwinds that you faced in the quarter? And I guess, I'm still trying to reconcile maybe what went wrong in the quarter? And then how we should think about gross margins for the full year? You did mention they’d be flat instead of improving, but just want to make sure they're not worse than flat. Thank you. A – David Klein: Yes. No we're still comfortable with flat, Bonnie. And if we kind of breakdown the gross – the Q3 gross margin, the transportation and logistics headwind accelerated a little bit for us in Q3, but we still, because of the productivity initiatives, we still were well on track to at least maintain our margins in the quarter. And then we had an issue with some raw material inputs into our glass facility in Nava, which caused us to have to slow down the furnaces and lower throughput for the plant in Q3. That's a one-time issue. But it created a headwind that the other – that in addition to the freight headwinds, we weren't able to overcome. But other – again other than a slight acceleration in our transportation and logistics cost headwind and the glass issue, we remain – we remain on track with where we thought we would be with gross margins.

Thank you. And our next question will come from Nik Modi with RBC Capital Markets. Your line is now open. Q – Nik Modi: Thanks. Good morning, everyone. So the – I guess the question is on the wine business and you're talking about some of the strategic alternatives. I know it's probably too early for you to give us some finite viewpoints, but maybe help us understand some of the options you might have available to you? I think there were some discussions in prior meetings about perhaps regionalizing some brands or even making some of the brands private label at certain retailers, maybe you could just help us understand kind of how we should think about it? A – Bill Newlands: Sure. I think, Nik, the way we're thinking about the wine business is this. We have an entire stable of brands that generate outstanding gross margins and have high growth profiles at the high-end of our business. You've heard me say before something like Kim Crawford has a 68% gross margin. It's a terrific business, as is Meiomi and many of our other brands and the Prisoner and things of that nature. We have been challenged by the lower end of our business, which in totality has been flat to down and we continue to be slightly over-weighted into that sector of the business. So we – as we've said before are taking a strategic look at what our portfolio should look like going forward, which could include disposition of some of the lower end of our portfolio. Our long-term view is that the high-end of the business, which is the – in our judgment, primarily are driven by over $11 price point is where we're going to get the kind of margin structure and growth profile that we think we would like to see for our wine business going forward.

Thank you. And our next question will come from the line of Steve Powers with Deutsche Bank. Your line is now open.

Hey, thanks. So, I really want to just pick on the $4.5 billion in cash return and just some clarifications around that. Is that – I'm assuming that's a fiscal 2020 to 2022 statement just want to get that out of there? And then any color you could provide on the cadence of that cash return? And as you think about the cash return alongside maintaining the targeted leverage ratio, I know you said you want to delever to 3.5 times then exercise the warrants, which presumably puts you back above 3.5. So as we think about the capital structure over that – alongside that $4.5 billion in cash return at the end of it, are you anticipating it to be at 3.5 times? Or be above that as you think about the next three years? Thanks.

So, Steve when we think about that – first of all this isn't necessarily new news in that, our company generates a lot of cash and we know that we're going to have CapEx ramping down over the next few years, the CapEx related to our beer business. And so we look at – we have a targeted leverage ratio of 3.5 times, although we're willing to operate in that three to four times range. And we're really confident that we'll be able to both, return $4.5 billion worth of cash, stay within our targeted leverage ratio range and exercise the Canopy warrants. And I think that's a pretty powerful view of the ability of our business to generate cash. And we don't expect that there would be any share repurchases in the remainder of FY 2019 just given where our leverage ratio is. So clearly your point about it being an FY 2020 through FY 2022 statement is accurate.

Thank you. And our next question will come from the line of Vivien Azer with Cowen. Your line is now open.

Thank you. Good morning.

Hi, Viv.

Hi, Vivien.

I wanted to touch on wine as well, a two-part question for you. Number one, could you – can you comment anything specific that drove the magnitude of the deterioration over the last three months in the low end, Bill, I heard you loud and clear that the low end has been a problem, but given the magnitude of the guide down it seems like something changed and changed pretty recently. And then the follow-up to that is, how do you think about the impact of potential asset sales in wine, impacting your ability to be a category captain or category leader in that category? So I think historically one of the cases for having a broad wine portfolio was that scale gave you a lot of influence at retail? Thank you.

Well, certainly the growth profile of the wine business, I think is going to continue to be in that $11. Now we've seen premiumization be an ongoing play for years and years and years and I don't see that changing any. Therefore, I wouldn't see that there would be a lot of difference in the whole question of being able for category captaincy. People look for organizations that have growth profiles and for people that have deep consumer understanding of where the market's going and why. Relative to the decline in our low-end business which is reflective in the earnings position. We've certainly seen that and we said this last quarter, our shipments have been ahead of our depletions, partially driven by our desire to make sure we had adequate inventory levels heading into the holiday season. And frankly that needs to correct in Q4. The low end of the business, which we've said, we are looking at strategic alternatives has suffered the most and that's not surprising when you make a statement of that ilk.

Thank you. And our next question will come from the line of Lauren Lieberman with Barclays. Your line is now open.

Thanks. Good morning. I think you've been pretty clear on the Canopy impact on the P&L and delineating cash versus non-cash impacts to net income. But I do think that there's a lot of concern out there around the degree to which you will see dilution to your earnings base in fiscal 2020 and beyond from Canopy. So you've talked about the CAD 1 billion in revenue. Anything that you can add in terms of the current outlook for Canopy's earnings? My understanding from them is that they intend to report Canada separately. So even if they reinvest profit dollars to establish U.S., so whatever it may be, that we'll see they're executing in Canada. But anything you can offer, I think, would be really helpful, because people are struggling with the 20 kind of number that we should be benign with here. Thanks.

Yes. So Lauren, so we expect and we've said this, this isn't Canopy, now this is really Constellation's view. We expect the Canadian business to be at that CAD 1 billion run rate. We expect them to have very attractive CPG-like operating margins within their business and that's focused on Canada. And we also know, as you pointed out, that there will be drags on their business from investment in R&D and the cost of opening additional markets. So we've said that, we expect that this transaction will be accretive to us by FY 2021 and we expect that to be the case, or we continue to expect that to be the case. In terms of actual guidance in the near term for Canopy, we're not in a position to provide that, primarily because they've just closed their recent quarter. They'll produce results in mid-February. And shortly after that mid-February results come out from Canopy, we'll then provide a bit of a walk through for the market on how those actual results will flow through our P&L, and that'll be the first time we do it. And then clearly, when we provide guidance we'll provide more specificity around the Canopy equity and earnings number. And I know you said, we've been clear on this, but it's a non-cash measure. We're viewing this as a ventures investment. We've already made that investment. That was the $4 billion investment that we closed in November. And we expect to get an outsized return on that investment, understanding there's going to be some volatility in our P&L, however that volatility will be non-cash in nature.

Thank you. And our next question will come from the line of Amit Sharma with BMO Capital Markets. Your line is now open.

Hi. Good morning, everyone. Bill, a quick clarification on wine and then the beer business. So you said, over shipment will clear in fourth quarter. Should we expect that impact to drag into fiscal 2020? Or by the end of 4Q, you would have achieved right inventory level for wine? And I have a beer business question. A – Bill Newlands: Sure. No, we expect – the way we have traditionally run is no matter what our situation is coming into the fourth quarter, we get our depletions and our shipments to balance during the course of the fourth quarter. So we would not expect that this would have impact on next fiscal year.

Thank you. And our next question will come from the line of Andrea Teixeira with JPMorgan. Your line is now open. Q – Andrea Teixeira: Thank you. Good morning. So in terms of the capital allocation for the strategic alternatives for the wine brands, would an outright sale be doable in that view? And if so, what is the part of use of cash, as you said before in the prepared remarks but could you please rank if that would be pay down the debt first buybacks and leaving the warrants for Canopy for after when you see your own cash flow generation? A – David Klein: Yes. So in terms of any proceeds of any asset dispositions that may come up over a period time, we would first make sure that we're comfortably within our targeted leverage ratio range. And then beyond that, as we've committed today, we'd be focused on returning cash to our shareholders. With respect to the Canopy warrants, and I want to be really clear about this, we're going to return $4.5 billion to our investors and we can fund the Canopy warrants. However, we'll only fund the Canopy warrants, if it make sense and the business is unfolding as we expect when we get into November of 2021. So if that business is going well, we think our investors will be happy for us to exercise those warrants. And if the business isn't going well, we'll have a lot more cash to return to our investors.

Thank you. And our next question will come from the line of Judy Hong with Goldman Sachs. Your line is now open. Q – Judy Hong: Thank you. Good morning. So I guess my question is around the Corona brand family performance. And recognizing that obviously this year, you had a very good performance on Premier and Familiar. Bill, I'm just wondering what do you think is going on with the Extra in terms of velocity being down this year? And then as you think about next year, do you think that the broader Corona franchise can continue to grow at this 7%, 8% even if Corona Extra is down a bit next year? A – Bill Newlands: Yes. One of the things that you see going on with Corona Extra is good news – what I would call a good news, bad news situation. Premier has done so well. And even though the incrementality is over 70%, which is phenomenal, the better it does, the more it has some impact on our other franchises from which it does take some cannibalization. So – and obviously, as you can have all seen, Corona Premier has virtually done twice what we expected it to do heading into this fiscal year. So it's been a phenomenal success. What I do believe is that the Corona franchise continues to have significant upside across the entire brand family. And my – just as a marketing belief, I think that the more Corona brand family we can provide to the consumer and that the consumer buys is outstanding for the long-term equity of the Corona brand family. So we're very optimistic. You then in turn add Corona Refresca, which brings a whole different consumer profile to the table. As I said during my prepared remarks, it appears that that will be in – at the high end of the incrementality that we saw with Premier, which was best-in-class. So again this will help to enhance the number of times that consumers in this country are picking up a Corona brand family product, and I think that speaks very well to the long-term franchise of Corona.

Thank you. And our next question will come from the line of Robert Ottenstein with Evercore ISI. Your line is now open.

Great. Thank you very much. So a lot of questions came into us on the gross margin for beer. And you addressed some of it, but I just want to kind of touch on a couple of points. One, shipments really strong, all things equal you would think the shipments would have been a benefit for the gross margin in the quarter. However, there could have been additional transportation costs related to that. Can you address that? Second on the gross margin. Looks like you got around 2% pricing for beer, is that right? And then finally, roughly what quarter do you think the transportation costs will start to ease? Thank you.

Yeah. So Robert, the pricing – so if I do a bridge out of our gross margin numbers, we got about 110 basis point benefit from pricing. We got a little bit of a benefit from FX. We had about 160 basis point drag from transportation and logistics, which is larger than it's been on a year-to-date basis. That's the acceleration that we were talking about. And then as I said we had some drag from the glass issue, which was in aggregate – that and maybe some depreciation amounted to about 80 basis points. So a couple of things happened when we get into Q3 and that's that even though we're shipping more we're actually – we are slowing down our production because it's our lowest, kind of, production quarter of the year. And so I think taken altogether, the gross margin worked out as we expected, but for the glass plant – the glass production issue, which is behind us.

Thank you. And our next question will come from the line of Kevin Grundy with Jefferies. Your line is now open.

Thank you. Good morning, everyone. Wanted to come back to Canopy and just given the importance here in the focus among the investment community. Can you drill down a little bit on the Canada rec rollout, I think you said strong demand I'm not sure if there's anything you can add to that, relative market share 30% to 40%? Another question, beverage rollout expectations, I think your discussion has been around calendar Q4. Maybe if you can frame the opportunity and what you're expecting there? And then just last in the long-term guidance, what gives you confidence at this point on the 1 billion within 18 months? And then David maybe you could just confirm the 30% to 40% operating margins as well for Canopy. I think you said CPG-like margins. Just want to confirm that you're still confident that 30% to 40% is operating margin is the right number? Thank you.

Sure. Why don't I take the first piece of that and I think David will take the last piece of that. Let me just remind everyone upfront that we are in a quite period, they are in a quite period at this point in time. So we will be reflecting things that have been in the public domain. Yes, Canopy has been progressing with the kind of market share, which we have said before is in the 30-plus-percent range of the total cannabis business in Canada. We also if you'll recall projected that the Canadian market as part of our total global projections of where we thought the market would go would be in the $5 billion to $7 billion range. And just this past week the Canadian government has estimated that the consumption of cannabis by Canadians in the third quarter was at a run rate of $5.9 billion, which of course is right smack in the middle of what the initial projections were. I'll remind everyone, beverages are not currently available in Canada. We expect and Canopy expects that that will change later this calendar year. But an exact date of that has not been defined yet. But I can assure you when and if that eventuality occurs and we certainly expect that it will. The Canopy will be in a position to take advantage of that opportunity.

And the only thing I might add to that, Bill, is the $59 billion number quoted by the Canadian government includes -- majority of that is illegal sales. So really the build to $1 billion is dependent upon the channel shift, if you will, from illegal markets to legal markets, of which we're comfortable with the market share that we've outlined before for Canopy. And I would say that after Canopy's results are released in mid-February, they will have a lot more to say about their margins as will we.

Thank you. And our next question will come from the line of Pablo Zuanic with SIG. Your line is now open.

Thank you and congratulations, Bill, on your appointment. Just a quick question. I want to go back to what Judy was discussing. I'm trying to understand better the cannibalization or the opportunity for Premier and Familiar in terms of further distribution gains. The numbers we are looking at Corona Extra, a core brand, is down about 10%; Corona Light down about 20%; Modelo Especial, which I think has been cannibalized from Familiar, has decelerated from the 19% range to 10%, 11%. So there is an impact. And according to our data, 80% of your growth in the fourth quarter November was really Premier and Familiar. Yes, the two brands have done great. So the simple question is, as you rolled out those brands, did you have to take space, existing space from your current portfolio? Or did you gain new space? Or are you in the process of converting that and expanding space? What are the opportunities for Premier and Familiar or even Refresca eventually, if it does well in on-premise restaurants in draft? If you can expand on that, because I think there's a question mark here. Depletions up 10% the last two years, this year running 9%, what happens next year when you're so dependent on these line extensions? And I want to speak to one question, but if you can just at the very end, as you have more extensions and you add more complexity to your portfolio, does that in any way affect your profit margins in beer? Thanks.

Sure. So let me answer the last one first. Any of the products that we have discussed, meaning Familiar and Premier and so forth, we're agnostic as to which product actually gets sold. The margin and profit profile of those individual products are virtually the same. Relative, so let's go back for just a minute to the question of cannibalization. We have seen the cannibalization exactly as we expected. In fact, if anything, it's been slightly less, meaning, more incremental than we had expected with Premier and Familiar. One of the things that we have done extensively and we are continuing to do and I think your point's a good one, is we have had the Shopper First initiative, where our emphasis has been, based on in-store research, as to what an appropriate shelf should look like that focuses on the right set of brands for retailers to maximize their benefit in the beer section. Of course, the beauty of that is, we actually come out pretty well on that issue. And that opens up significant opportunities for us to expand distribution and shelf space. And frankly, we need that shelf space, because our portfolio with its share-gaining performance really demands that kind of shelf placement improvement. I would also mention that Refresca, which you asked a question about, we'll probably not be sitting in the middle of the beer section. This is an alternative beverage alcohol product that will placed – be placed in the different door of the cold box. And will compete with other brands, not necessarily directly within our franchise and we think this is great, because it opens up another window coming from the great equity that Corona has and has had for many years.

Thank you. And our next question will come from the line of Tim Ramey with Pivotal Research Group. Your line is now open. Q – Tim Ramey: Thanks so much. Understand your commentary on the sub-$11 wine business, but is there enough other than Woodbridge in the portfolio that would really make a difference there? Is this a Woodbridge problem? Can you speak directly to the performance of Woodbridge? A – Bill Newlands: Sure. We're actually very happy with Woodbridge. Woodbridge is in a category that's actually in decline but Woodbridge is gaining share within that category. And obviously, it benefits from the Mondavi franchise halo, as you know we have Mondavi’s franchise covered it in a number of price points. And so, Woodbridge will continue to be an important part of our portfolio. And yes, we have a substantial amount of assets in the under $11 price point outside of Woodbridge. And that gives us significant options of what to do going forward and as we said earlier – in fairly recent time, we’ll be able to talk about that more extensively. A – David Klein: Then we've also said in the past that, about 30% of our volume comes at the greater than $11 price point. And then if you look at Woodbridge. Woodbridge by itself is about 20% of our volume. And of course, when we're looking the greater than $11 price point, we get a lot more dollars out of that volume. But that gives you a sense for what else is in the portfolio.

Thank you. And our next question will come from the line of Bill Chappell with SunTrust. Your line is now open. Q – Kiernan Conway: Hi. Good morning. This is actually Kiernan on for Bill. We just had a question on the spirit side of the wine and spirits business. We have been talking about that much this morning. So hoping to get some comments may be on the SVEDKA national marketing program and any other more kind of commentary on the general portfolio? A – Bill Newlands: Sure. It's early days on the new creative that we have put out in the marketplace but I can assure you from our initial testing, this is one of the stronger campaigns, certainly that this organization has put out in the recent past. So we're very excited of how that campaign could work for us. And I think it's a great example of some of the work that Jim Sabia has done to bring some of his outstanding marketing efforts in Beer to our wine and spirit efforts as well. So we're very optimistic about it. SVEDKA has already been performing in a positive manner versus the vodka category and we think this can only help it. I'm sure you've also seen, we have very good results as it relates to High West and Casa Noble and continue to see the more premium aspects of our spirits portfolio as important going forward as well.

Thank you. And our next question will come from the line of Laurent Grandet with Guggenheim. Your line is now open. Q – Laurent Grandet: Yes. Good morning, everyone and thanks for the opportunity. I like to discuss about the Mexicali new water issue. I mean, more and more reports in the Mexican press that there are potentially some risk associated to order rates at the Mexicali brewery, and the impact it has on the local community. So could you please give us some more color about that issue? And let us understand how you are planning to mitigate those risks?

Sure. As I said in my prepared remarks, our efforts in Mexicali have been totally in compliance with all Mexican law and has been done with a deep understanding of water usage. We do not believe this is a major issue, and we believe that all is going to proceed as planned with our Mexicali site. I will say and I said this also with the completion of our Nava facility as well as our expansion at Obregon that after the five million hectoliters of Mexicali comes online that facility will only represent 10% roughly of our total capacity in Mexico one way or the other.

Yeah. And said in another way more from an investor's standpoint I would say that we can with Obregon and Nava, Bill said this in his script, we have the ability to produce 400 million cases of beer from Obregon and Nava.

Thank you. And our next question will come from the line of Bryan Spillane with Bank of America. Your line is now open.

Hey, good morning, everyone. David, I just wanted to follow-up, you had referenced I think in your prepared remarks just the medium-term growth targets. And – so just had a couple of follow-ups on that, one is the diluted EPS expectation. The EPS growth of around 10%, does that now include share repurchases given what you've said about capital allocation? And I think the second, you kind of referenced that it's not linear. So I guess as we're kind of looking into fiscal 2020, it's kind of sounded like beer margins may be under pressure for a little while longer, not sure with the past to low – mid-single-digit growth on operating income in wine and spirits is? So if you kind of meant to refer that next year may – could potentially be in off algorithm year? Thanks.

Look, Brian, we haven't even finished rolling up our estimates for next year. What we do know is when you look out over the medium term with our beer business, we still expect that high single-digit net sales growth. We still expect to have very robust margins. And then Bill talked about the wine and spirits view, which is kind of mid-single-digit growth and 30% operating margin. So we think that along with our ability to make investments in the business and buy back our stock as well as getting – working our way through the early years in the choppiness in the equity and earnings in the Canopy investment, we expect that we'll continue to see that 10% EPS growth target that we put out before.

Thank you. There are no further questions in the queue. So now I'd like to hand the conference back over to Mr. Bill Newlands for any closing comments or remarks.

Thank you, everyone for joining our call today. I want to take this opportunity to wish all of you a safe and happy and prosperous new year. And as Rob said at the beginning, hopefully you'll do that while enjoying some of our fine products. I'm honored to assume the role of Constellation's CEO in just a few short months, and I look forward to capturing the great opportunities that lie ahead of us for our company. We look forward, David and I to seeing many of you at the CAGNY Conference in late February, where we'll be providing an update on our strategic business initiatives. As a reminder, during our next quarterly call we will provide our guidance for the upcoming fiscal year. So thanks again to everyone for joining the call and have a great day.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody, have a wonderful day.