Welcome to the Constellation Brands Q1 Fiscal Year 2020 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, Daniel. Good morning and welcome to Constellation's first quarter 2020 conference call. I'm here this morning with Bill Newlands, our CEO; 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 we make on this call. Before turning the call over to Bill, 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 Bill.

Thank you, Patty, and good morning, everyone. Welcome to our discussion of Constellation’s first quarter sales and earnings results, which reflect an excellent start to our new fiscal year. Before I get started with our business review, I would like to emphasize three key takeaways on this morning's call. Number one, we are confident in our ability to close the Wine and Spirits transaction with Gallo, which we expect will occur in the second half of calendar 2019. For now, we have updated our fiscal 2020 EPS guidance to assume that we closed at the end of the second quarter, but we will adjust accordingly as we get more clarity on the exact timing. Meanwhile, we are fully committed to supporting our entire portfolio throughout the transition. Number two, the transformation strategy for our Wine and Spirits business is working, led by the power brands in our portfolio, which achieved over 4% depletion growth in the first quarter. This collection of faster-growing, high-margin brands is expected to drive the growth of the business going forward. And number three, we posted strong net sales and margin results for our beer business in the first quarter, driven by continued outstanding performance by our growth engine that is Modelo Especial. In addition, we are pleased with the nearly 7% overall depletion growth, even with Corona Extra seeing some impact from unfavorable weather in several of our largest markets during the quarter, while overlapping last year’s highly successful launches of Corona Premier and Corona Familiar. Bottom line, we remain confident in our ability to achieve 7% to 9% net sales and EBIT growth for our beer business in fiscal 2020. Speaking of beer, during the first quarter, the Constellation Beer business continued to gain share with growth across all channels, driving one-third of the…

Thanks, Bill, and good morning, everyone. Fiscal 2020 is off to a great start. Core business results exceeded expectations with operating cash flow up 18% and free cash flow up 30%. These strong results were primarily driven by our Beer business, which generated 12% operating income growth. We've increased our full-year comparable basis, diluted EPS range to $8.65 through $8.95. This range excludes Canopy equity earnings impact and now assumes revised transaction timing to sell a portion of our Wine and Spirits business that Bill outlined. The $0.15 increase in EPS guidance represents one additional quarter of EBIT from the portion of the Wine and Spirits business that we've agreed to sell, partially offset by a delay in cost savings realization now expected to be at the low-end of our fiscal 2020 range of $35 million to $55 million and incremental interest expense due to debt paydown now targeted for the second half of fiscal 2020. After the transaction closes, we continue to expect to eliminate a total of $130 million of stranded costs from our Wine and Spirits business by the end of fiscal 2021. Now let's review Q1 performance in more detail, where I’ll generally focus on comparable basis financial results. Starting with beer. Net sales increased 7% on shipment volume growth of 5%. Shipment volume was higher than expected, primarily due to additional shipments made at the end of the quarter as part of efforts to mitigate potential tariff risks. As a result, the beer shipment timing benefit at the end of fiscal 2019 is now expected to reverse during the remainder of fiscal 2020 since it didn't occur in Q1. Depletion growth came in at 7% continuing our streak of excellent portfolio performance during the key Cinco and Memorial Day holidays. This growth is compared to…

[Operator Instructions] Our first question comes from Judy Hong with Goldman Sachs. Your line is now open.

Thank you. Good morning.

Hi, Judy.

So I guess I want to zero in on the beer depletion growth particularly around the Corona brand family. Clearly, the weather was a factor, but sort of how much does your analytics kind of point to weather being a factor versus Modelo obviously accelerating and you've talked about the cannibalization impact for Modelo and then clearly the Spiked Seltzer category kind of booming, how much is that also cutting into the Corona brand family? And kind of dovetailing that, if you think about the mid single-digit depletion guidance for second quarter, can you just talk about the drivers of that other than just a comparison, how much is really the shipment on their performance or is there a little bit more caution around depletion just given the poor start to the summer given the weather? Thank you.

All right, Judy. We will try to wrap that into one thought. So here we go. Look, we are comfortable with where Corona is as a brand. If you look at the most recent IRI trends through 6/16, Corona Extra is up admittedly against very tough overlaps with the weather challenges that we had during the first quarter. It's also appropriate to recognize that with the accelerating Modelo trends of 17% growth that certainly has some impact within the overall portfolio as well. And certainly, it's worth noting that Seltzer business has become a larger factor in the high-end than it had been in prior years. So all of those things certainly have some impact on the overall business. With all of that said, the overall family is roughly flattish. We are comfortable with where that business is looking, and as you noted, our overall depletion profile across our entire business was up just under 7% in the first quarter. If you in fact, look at June, while taking out the single day which happened to be a Friday that we lose in this quarter versus comparable quarter a year ago, the actual depletion rate in the month of June would be above the year-to-date depletion rate.

Yes. I want to just expand on that last point that Bill made. So in Q2 when we report our results, we lose a day of depletions, which doesn't come back until Q4. So it's an anomaly that you guys should factor into your models.

Thank you. And our next question comes from Bonnie Herzog with Wells Fargo. Your line is now open.

All right. Thank you. Good morning.

Hey, Bonnie. Good morning.

Hi. Just a few more questions on Corona. First on Premier, I just wanted to hear from you guys were the results in the quarter better than you expected and if so why? And then on Corona Light, it's really still not where you want it to be. So maybe drill down a little bit further on any initiatives you might have to improve the brand? And then finally, how much further do you think you can extend the Corona brand? For instance, you're missing an opportunity right now in Seltzer, which just kind of touched on, is there a way to leverage one of your existing brands possibly Corona, and what could be the timing of that? Thanks.

Sure. So let's talk first about Premier. We were very pleased with the results of Premier in the first quarter. Keeping in mind, it was going against a year ago, when we introduced it, which automatically has the normal stock-up scenario when the brand was introduced. With all that said, it was up double-digits, and as you know, we have raised the advertising profile of that brand, and we'll be doing so for the remainder of this fiscal year. Relative to the overall family of Corona, as you know, we're very excited about Corona Refresco. We're off to an excellent start against that, and by the way, if any of you haven't had it I would strongly encourage you to do so. They are really delicious and very refreshing. So that is certainly the focus of our approach for this fiscal year and this summer selling season just to make sure that we maximize the potential of both Premier as well as Refresca in the overall mix of the Corona brand family. With all of that said, we continue to be excited about the opportunity that we have with Corona going forward. We do recognize that relative to your question about Seltzers that Seltzers have taken a larger piece of the growth profile in the high-end than they had in previous quarters and years. And certainly, our view is this. We explore all options where we have the ability to profitably participate in categories, and we will continue to do that. That's a standard way we operate. We will do that again going forward.

Thank you. And our next question comes from Nik Modi with RBC Capital Markets. Your line is now open.

Yes. Thanks. Good morning, everyone.

Hey, Nik.

The question is on Wine and Spirits. So I guess this new Mondavi Woodbridge ad campaign is hitting the airwaves now. Can you just talk a little bit about the process here that's different? Now that Jim has kind of taken over the CMO role, and do you have plans to do similar types of campaigns on other of your power brands in the near-term?

Yes. As you know Nik, the Woodbridge brand is a critical brand for us just because of its sheer size and profitability. The advertising campaign that Jim and the rest of the marketing team have put together, we're very excited about. I don't know if you've seen it yet, if you haven't, I think it's highly compelling. We showed it to our Board yesterday, and we've just launched it this week, and we're very excited about the potential because it really speaks to Robert Mondavi's original goal to put great wine at every price point on every table. And I think the advertising that was developed does an exceptional job of suggesting just that. But we're not limiting our advertising efforts to that brand. As you've seen, we've spent and raised our profile in SVEDKA Vodka and the brand has responded. The SVEDKA growth profile has accelerated versus prior year. We will also be spending during the course of the summer months on both Meiomi and Kim Crawford. Kim Crawford in particular with its lead Sauvignon Blanc is a terrific wine for the summer season, and both that and Meiomi in addition to the others that I mentioned will all be supported during the coming selling season.

Yes. I'd add to that Bill that we've – I mentioned in my script that we had favorable price in our Wine and Spirits portfolio and that was primarily driven by our ability to get higher realized pricing for Woodbridge and SVEDKA. Two brands that we're investing behind and it's that kind of approach to really nurturing CPG brands, where we're going to be able to charge appropriately for the equity that exists in the brand, but then we're going to spend back to help the consumers understand the value proposition that we're offering. That's why we're all really excited about our new approach to our power brands.

Thank you. And our next question comes from Lauren Lieberman with Barclays. Your line is now open.

Thanks. Good morning. We definitely got asked many times to the quarter sort of our view on the said discounting on Corona cans that was in some of the industry trade press. If you guys could just comment a little bit on pricing strategy for the Corona brand family overall? And to what degree that was sort of these plans and what went on during the quarter was already part of the full-year plan, and within that 1% to 2% pricing expectation for the portfolio or was something kind of newer that came up with the poor weather and so on? Thanks.

Well, as you know, a lot of individual programming occurs with local retailers. It happens all the time on particular formats and sizes. While that was said, we achieved strong pricing in the quarter, up 1% to 2%, and we certainly have no uniform discussion of pricing and price promoting. Again, as I said a moment ago, price promotion occurs on a local level a lot, and it occurs usually on particular formats to get particular price points during key selling seasons. So we have not moved away from our normal expectation of 1% to 2% pricing. And in fact, we were quite successful in achieving price promotion during the quarter.

Thank you. And our next question comes from Vivien Azer with Cowen and Company. Your line is now open.

Hi, good morning. Bill, I really appreciated your candor in your prepared remarks about your view of Canopy's most recent earnings results. So I just wanted to dig in on that. In terms of your disappointment in the quarter, I mean certainly the expanded EBITDA losses stand out, but was there any concern around the topline? So any more color around just that specific comment. And then as a follow-up to that, can you talk about your expectations relative to previous public commentary from CAGNY around the financial results for Canopy going forward? Thank you.

Sure. We continue to expect that the run rate topline profile by the end of the next fiscal year will be in the $1 billion run rate range. With that said, and we need to all recognize. There are going to be splits and starts around a business like this when various form factors and products either have better acceleration or weaker acceleration of what everybody had anticipated. As you know, Ontario, which ultimately should be the biggest province has been a little behind some of the other provinces, in terms of opening stores, which always impacts things. So there is going to be some splits and starts in this thing. I think what we remain excited about is that this is going to be a big long-term business, and we are working with Canopy almost on a daily basis to ensure that we are all focused on the right things. The things that are going to drive the business, the things and the form factors that are going to matter in a way that gets to ultimate profitability for that business in an appropriate time frame.

Yes. Vivian, I'll comment on our previously made commentary around the business being accretive to our results in 2021. Those comments were predicated on Canopy's performance in Canada, their performance in their existing rest of world medical markets, return from our $4 billion investment, and they assumed we wouldn't have legalization in the U.S. because of course we know legalization in the U.S. would drive large P&L investments, which we'd all be happy to make to be able to participate in that large market. So let me just pick through those and talk about the current state. So in Canada, we know that this business is volatile as Bill outlined, but we think it's mostly on track with all of our expectations. We know that as it relates to FY2021 that the slight delay in edibles including beverages in Canada will likely impact our FY2021 because it's unlikely that Canopy will have the broad array of products in the market by calendar one – quarter one, calendar 2020, which will affect our first quarter of next year because of the two month lag on which we consolidate Canopy or we recognized income on Canopy. So Canada is on track, but we expect it to be volatile and the team at Canopy is quite good and really working their way through any execution issues that they may have had in the past. From the existing rest of world medical markets, we think those markets are on track, again real strong performance in those spaces by the Canopy team that we're pleased with. In terms of investment returns, we're very happy with the investment in Storz & Bickel, which you saw in their results last quarter. And we're extremely excited about the agreement with Acreage which, while expected to be a profitable company won't be consolidated and reported through the Canopy results in a way that would affect our numbers in the foreseeable future until there is a triggering event in the U.S. And then the last point is really on the unexpected legalization of CBD in the U.S., which will require a significant amount of investment, which Canopy has already announced. And we think that that's a good place for them to focus their money and their resources to really take advantage of what could be a very large and profitable market in the U.S. And we're really happy with how they're positioning themselves there. So look, we still are very bullish on our Canopy investment, and we're very happy, we made the investment when we did into this space which more and more people are starting to wake up to. As it relates to its effect on our financial results, we're going to continue to assess as we go through FY2020 as to how we will adjust our statements on the accretion or dilution effects on Constellation.

Thank you. And our next question comes from Dara Mohsenian with Morgan Stanley. Your line is now open.

Hey, guys.

Good morning.

Hi, Dara.

Clearly, beer margins came in better-than-expected in the quarter versus your flat implied expectation. I guess some of that was less of a Q1 inventory drawdown than expected. But that would appear to be only a modest portion to beer. So just curious for the lack of a full-year margin raise on the beer business, despite the big Q1 beat, is that more – we're just still early in the year or are there other factors in the remainder of the year that might reverse some of that Q1 upside? How should we think about that?

Yes. So Dara, I think we still have concerns about the wage rate inflation in Mexico and increased costs of glass and other forms of packaging. We still have freight and logistics headwinds in the business that we continue to see. In Q1, we had some really good benefits from primarily pricing and FX, and some productivity improvements that were offset by the things that I just listed out. So and as you said, we had a bit of a benefit from over shipments in Q1, which works its way down to the growth in bottom line operating margin. In a comment on Q2, we expect that our marketing spend will be up slightly year-over-year in Q2, which will – have this coming probably a little lower than the 41.2% margin that we achieved in Q2. We tend to kind of max out our margins in Q2. So we'll run a little bit lower than that this year. And then I think any further growth in margins, away from the 39% target that we put out, which we feel is the right number for us for this year, will really be driven by maybe outsized gains in pricing or unexpected benefits from FX. So I think the 39% represents a pretty balanced view of the remainder of our full-year.

Thank you. And our next question comes from Robert Ottenstein with Evercore ISI. Your line is now open.

Great, thank you very much. Just want to get a little bit better feel for kind of the underlying consumer demand? It's a tricky quarter to do that, given some of the comps. And I was just wondering perhaps you could give your best guess of the impact of weather. We are thinking it could be, maybe 100 basis points, 200 basis points, is that too high? And also – we are also hearing that you got quite a nice amount of incremental shelf space in the quarter finally. Can you talk about that in terms of if that's right roughly the kind of timing of that in any way to quantify it? Thank you.

Yes, I'll take a shot at it and then Bill can fill in the hole. So I think from a consumer demand perspective, we've seen this volatility over the past few years, where we had a very strong April as you've seen in our results. And I think there is clearly a large effect from weather across the country, in particular in markets where we over index. I can't really comment on your range, our numbers – we can get it to that level of detail across the entire industry. But the biggest competition, the biggest change in consumer demand in the market that we've seen has been the result of the acceleration of Seltzers. It hasn't really been anything outside of weather, the result of other factors says affecting our portfolio of brands.

The only thing I would add to that David is, and then we've touched on this a bit before, is that we are overlapping a very strong growth profile from last year in the same quarter with both Premier and Familiar. So to show the kind of overall depletion growth that we had in the quarter of just under 7%, we are quite pleased by. Any time you have two major overlaps and they were both very successful. And as you can see, Premier continues to be very successful overlapping the introduction. You will have some impact on your business. With that said, with almost 7% growth in the quarter, we're quite pleased with how the year is setting up.

And just one other point, Robert you mentioned a growing shelf space and you know that that's an important component that our sales team is laser-focused on. We've also seen in particular Corona Premier's 12-week based volume velocity increased by almost 25%. So we're seeing some really good signs in the marketplace, as it relates to our brands.

Thank you. And our next question comes from Kevin Grundy with Jefferies. Your line is now open.

Thanks. Good morning, everyone. Questions for David, housekeeping on the guidance, and then one on return on capital, so quickly on the EPS guidance, despite the strong margin performance, it sounds like the upward revision to your EPS outlook is entirely due to the timing of the wind of divestiture, if you could just confirm that? And then with respect to the return of capital, you're maintaining the prior guidance of $4.5 billion in dividends in repurchases over the next few years, but that was prior to the more favorable terms of the Canopy warrants as part of the Acreage transaction. Maybe you can just comment on the greater flexibility that you have to potentially see that guidance? Thank you.

Yes. Thanks, Kevin. So yes, our guidance revision really reflects one additional quarter of the brands that are to be sold, offset by an increase in interest expense because we won't be receiving the cash from the sale in the same timeframe as we had anticipated, as well as because our – the transaction closes later in the year, our ability to get to the high-end of that $35 million to $55 million stranded cost takeout range is a significantly hindered, which is why we said we're more likely to be at $35 million for the year. But for clarity, still on track to hit $130 million total stranded cost takeout. And so the guidance change was really solely focused on the Wine and Spirits divestiture. As I said, we remain of the belief that we will end the year at 39% operating margins in our beer business. And in terms of cash return, Kevin, yes, we're really happy with the incremental flexibility that we get from the revisions to the warrants and we're just continuing to focus on the $4.5 billion of return to shareholders. I guess, that we want to as quickly as possible return $4.5 billion and then we'll decide what we do after that, but again, we simply remain focused on getting as much as we can out of our Canopy investment and returning cash to our shareholders.

Thank you. And our next question comes from Bryan Spillane of Bank of America. Your line is now open.

Hey, good morning everyone. I wanted to follow-up on the Focus brands within Wine and Spirits. And I guess there is some more advertising and marketing that you mentioned in response to Nik's next question earlier. Can you talk about maybe just over in the next year or two, kind of a longer timeframe? Are there like distribution opportunities or merchandising opportunities that like aren't optimized today that might give you kind of a runway of growth in those brands that are maybe similar to what you saw in beer over the last couple of years?

Sure. You bet. We are doing a lot of analytical work around what is the best way to present our brands to the public. As an example, much like we have done in beer on space assessment, we're doing the same kind of space assessment work in our wine business as to whether or not more facings are better than something else, as an example. So we do believe that there is interesting and significant upside for that set of brands. They first of all, they're growing brands, they participate in growing categories, and we're going to support those and many of them with consumer advertising, at the same time, while we are increasing our analytical capability to leverage things like you note, which is where do we focus our incremental time and attention of our distributors and our sales organization, so that they maximize the potential for those brands. So the short answer is, yes. All of those things are being done and that should give us significant upside opportunity within our, the brands that are in the power sector of our business.

Thank you. And our next question comes from Kaumil Gajrawala with Credit Suisse. Your line is now open.

Hey, good afternoon everybody. First one, just a quick one, how severe your 6.6% depletions came from your new products collectively? And then the second question, on the wine deal, is it structured as all or none, or are you able to carve out certain brands and effectively you have to keep them if it ends up going that route? And the reason why I ask is, if you look at the market shares at certain price points turns that they, they can be quite high, and so as we go through this kind of second request in information process, and curious if you have to sell the whole thing, or if you have the options to sell pieces of it or not?

Go ahead, David.

Yes. So Kaumil, I'll start on that one. Look, we remain committed to the transaction that we've agreed to with Gallo, we're working our way through the FTC process, and we expect that we'll reach a successful conclusion. We've also stated for clarity that while we've extended our guidance through the end of Q2, we want to be clear that as stated in the 8-K, when we announced the additional work that we needed to do with the FTC that we would close, we expected the transaction to close in the second half of the year. So we'll provide a little more clarity, when as we get closer to a final resolution.

And as to your piece of your question about the depletion growth obviously with 17% growth in Modelo Especial and the sheer size of that business that was actually the single biggest driver of our depletion growth profile coupled with double-digit growth in both Corona Premier and Pacifico. So – and at this point, we view Corona Premier as part of the franchise. We don't necessarily view that as a "new product" at this point. Obviously, Refresca had some benefit during the quarter, but it was relatively minimal compared to the sheer growth that existed on those mega brands of Modelo and the Corona Premier/Pacifico groups.

Thank you. And our next question comes from Amit Sharma with BMO Capital Markets. Your line is now open.

Hi. Good morning, everyone.

Good morning.

Bill, can you talk about your on-premise trends for the beer business? I mean, lots of us focus on the IRI data and that data showed your depletions maybe a little bit weaker than where you came out to be. Is that the run rate going forward or should we think about that? And then on innovation, the question is as you focus on the Seltzer side of the business, do you believe you have the brand extensions already in the marketplace to go into that category? Or would you like to extend one of your brands as you think about the Seltzer category going forward?

Sure. Let me start with your question about on-premise. On our on-premise business, we see as being up mid single-digits for our overall beer portfolio compared to an industry that's probably off low-single digits. So we certainly are outperforming and as I think, I noted in my original remarks that we're seeing an excellent uptick of 20% plus in Modelo draft as an example, which obviously occurs entirely through the on-premise arena. Our focus admittedly as I have said, we are watching Seltzer category very carefully. But I'll also say this. Our Refresca business is where we are focusing our attention this year. We think it's critically important when you introduce a new product and a new brand that you put the intensity of focus on that to get that into the mouths of consumers who are interested. And as I said earlier, as good as they are getting it into their mouths is a critically important element because they are just delicious. So our focus and intention is entirely around Refresca for this season, but as we said earlier, we will continue to explore all options where we can profitably participate in all of the areas of the business where we think it makes sense for us to do so.

Thank you. And our next question comes from Andrea Teixeira with JPMorgan. Your line is now open.

Hi, thank you. So hi, Bill and David, and Patty.

Hi.

How are you? I just wanted to go back to the comment on the Corona family leaving the quarter and the one less day in the Corona family, we are accelerating in the most recent read from depletion standpoint, I appreciate our comment. But removing the noise from the inventories the one less day, if you think of the final consumer demand all channels, including the commentary that you gave on the on-premise, do you think the family can go back to that sweet spot and re-accelerate from flat to low single and or even mid single-digits from a consumer takeaway standpoint? I know you're comparing the plus 8 that you had last year from the plus 4 to the plus 8. But just to give us some perspective of the final demand and how we can put everything together all channels?

Yes. We expect that the Corona family is going to have a very solid year with growth across the family, and again I would include the entire family. That would be Corona Extra. That would include Premier, Familiar etc. So we are continuing to expect that that business will perform well as you know. Our advertising has been increased against the Corona franchise for this year. Well, while many others actually are doing the opposite. So our share of voice within the beer category will be up during this summer selling season and we are very optimistic that Corona is going to be an important part of our growth profile acknowledging that we are 30 years and counting on our double-digit growth with Modelo and we're off to an amazing start this year.

Thank you. And our next question comes from Tim Ramey with Pivotal Research Group. Your line is now open.

Maybe a quick one and then a different one. Any early thoughts on CapEx for 2021 and the wine in cans initiative is really interesting. It's been a super hot growth category. Any expectations on what that might look like?

Yes. So I'll hit the CapEx question. Yes, if we look at our CapEx over a three year horizon. So FY2020, FY2021 and FY2022, we expect that will be a net $700 million to $900 million range and we're headed toward that and that's inclusive of $200 million to $400 million of kind of maintenance CapEx within our business. So I think, even though this year's guidance is $800 million to $900 million total CapEx, which is going to be in that range for the next couple of years.

And relative to the question around the wine in a can, as I commented in my previous remarks, our Crafters Union brand, which we are very excited about is it was part of our tying with the NFL and we think it's a great format. We're also looking at the idea of other can opportunities. I'll give you an example. Kim Crawford. We're looking at single serve Kim Crawford in a can as well. It is a great packaged for on-the-go and for certainly summer events and it seems like the consumer based on our research, the consumers are comfortable with a can format for wine. And therefore, we will participate with the brands that we feel are appropriate and where there is going to be real consumer demand within our portfolio.

Thank you. And our next question comes from Steve Powers with Deutsche Bank. Your line is now open.

Hey, great, thanks. A follow-up on your guidance, I guess, question is for David. I understand that the puts and takes that you ran through specific to the year and the quarter. But just stepping back at the risk of your loss in the numbers, if I take what you've said at the midpoint, so beer profits up 8% after 19 days, wine profits down say 27.5%, $430 million for interest expense. And then I add $30 million or so for Opus take away $200 million or so for corporate costs and tax effected out 17%, but the math that I'm running through just seems to point to something closer to like $9.20 in EPS, $9.20 so well above your current range. So just – am I missing something either in the math or in my logic or just can you bridge that gap for me, thanks?

Yes, I think it comes back to the things I pointed out earlier, Steve, which is really the, we take our previous guidance. We add one quarter of wine EBIT for the brands that are going to be sold. And there are a couple of things to consider with that. First of all, those brands and we put it in our earnings release, their performance last year, those brands are declining. There are stranded costs that we won't be able to take out because we used to have nine months to take cost out of the business, we will now have six months to take cost out of the business. So the incremental and we have the incremental interest expense on that. So I think when you factor all of those in, our guidance range makes sense. Maybe one other thing to think through is that, if you look at last year's numbers, I think we were in the maybe $20 million-ish of NCI, the NCI number is going to be in the $30 million to $40 million range.

Thank you. And our next question comes from Sean King with UBS. Your line is now open.

Hi guys, good morning. I apologize if I missed this one, but are you holding to your full-year expectation for Premier Growth? I know that with the track channels decelerating somewhat, but or is that more sort of offset by the accelerating strength in Modelo Especial?

I'm not sure if it's yes or no. The answer is, we're expecting that it will be the previously expected growth profile. We're very pleased with the start the Premier is off to, and as David alluded to a little bit before we are seeing accelerating velocities against the Premier franchise. So yes, we're comfortable with where we expect that to go.

Thank you. And our next question comes from Laurent Grandet with Guggenheim. Your line is now open.

Yes. Good morning, everyone.

Hi, Laurent.

Two quick questions, so one on spirit guidance. So in a previous communication after the 4Q, you guided Wine and Spirits organic sales growth between low single-digit and mid single-digits, and high single-digit organic operating income growth. So you are not providing any more, any guidance this quarter. So how should we read this? And my second question is about Refresca, I mean I know it's still very early on. But could you share any feedback you are receiving from wholesalers, retailers and maybe having, the first I mean trying this with consumers. So that would be very helpful. Thank you.

Yes, so what you're referring to, I think is inorganic sort of guidance for Wine and Spirits. And so we would expect that to be flat to slightly down. Now both topline and bottom line based upon the incremental quarter. And relative to your question on Refresca, it's early days and it's always dangerous to make too many projections on 30 days worth of selling. With that said, we are very pleased with where our ACV distribution has gotten to after the first month. And we've noticed that the variety pack has been particularly successful in the early days. Now whether or not that continues, I think it remains to be seen. It could very well be consumer sampling and deciding, which of those they happen to prefer, but certainly the early response in the variety pack has been – has exceeded our expectations.

Thank you. And our next question comes from Bill Chappell with SunTrust. Your line is now open.

Good morning. Thanks for taking the question. Just want to go back to Woodbridge, and just trying to understand with a sub $10 brand, which is still part of the portfolio, and your kind of thoughts of these – the power wine and spirits brands growing at a much faster rate both next year and going forward. Just trying to couple that with what you've seen in the category for that kind of price points and with the competition in up years and down years, how confident, I mean that Woodbridge doesn't pull that growth down or that it can actually contribute as part of that?

Yes. So we've said in the past that when you look at our portfolio, Woodbridge is required for us to, we feel retain appropriate critical mass in our production facilities and with – and to retained clout with retailers. And as a result, we needed in our portfolio, understanding that just the category plays in, even if it continues to grow share in its category, it will be a drag on the total portfolio, and it's about Woodbridge represents about one-third of the remaining business kind of post sale. But we think this is a very important brand for our portfolio. And Jim Sabia and Robert Hanson are very focused on driving this brand's growth, and as evidenced by the new spots that we're seeing come onto TV over the last week, because we need this brand to be healthy, and we think that we can get some outsized share growth in its category. And at the same time, be able to give ourselves a little bit of pricing power with the brand. So we feel a lot of upside to Woodbridge and we're pretty excited about having it as part of our power brand portfolio.

And Bill the other thing that I would purely add is keep in mind the 15 which is the larger size, no pun intended. It's the larger size within the portfolio sells for $12.99. So it gets into a plus $10 price point, when the consumer is pulling out their wallet to pay for our brands. So I echo what David said is Woodbridge has done an excellent job of outperforming the category in which it competes, and with the additional support and investment that we're going to make against it, we expect that that will continue to and be an important piece of our remain co as we go forward.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to William Newlands for closing remarks.

Thanks very much, Daniel. So thank you all for joining our call today. The excellent start to fiscal 2020 has nicely positioned our business for another very successful year. The summer selling season is now in full swing, and our team plans to capitalize on the momentum we have underway, as we are well positioned with outstanding advertising and marketing initiatives across our entire portfolio. And as July 4, holiday is just around the corner, I hope your responsible celebrations with family and friends will include our fantastic beer, wine and spirit products. So thanks again everyone for joining the call and have a great summer.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program, and you may all disconnect. Everyone have a wonderful day.