Constellation Brands (STZ) reported fourth quarter results that exceeded analyst expectations on both profit and sales. CEO of Constellation Brands Bill Newlands joins The Morning Brief to discuss the performance.

Newlands describes the fourth quarter results as "a great quarter" that "finished up a great year" for the company. He acknowledges that consumers have become more price-conscious but notes that Constellation Brands did not significantly raise prices during the pandemic to retain its consumer base.

Newlands credits the company's "great brand loyalty" and "approach to pricing" for its ability to maintain consistent sales, even as consumers have become more cautious about spending. He believes Constellation Brands has "a lot going in their favor," with plans to extend product lines across its brands and update existing offerings.

Regarding the company's wine business, which has faced pressure, Newlands highlights the addition of an executive with over 30 years of experience in the wine industry. The CEO expresses confidence that the company's "strategy is right" and will lead to improvements.

Importantly, Newlands also emphasizes Constellation Brands' innovation in the non-alcoholic product space, which the company sees as a growth opportunity.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post is written by Angel Smith

Video Transcript

BRAD SMITH: Consumers continue to crack open a cold one on Friday night. Why not? Boosting Constellation Brand sales in its fourth quarter. Net sales in its beer segment jumped 11% in the quarter driven by the popularity of the Modelo Especial brand. Joining us now is Bill Newlands Constellation Brands CEO, plus our very own Executive Editor Brian Sozzi. Bill, they were cracking open these beers on far more than just Friday nights clearly by these results here. All things considered, I mean, we were joking about this yesterday. I mean, my spirit animal is doing Duolingo and also cracking open a Modelo at the same time. I'm wondering what some of the catalysts are that you saw in this quarter.

BILL NEWLANDS: It was a great quarter, and it really finished up a great year. Last year, we were named by Sakana, the number one CPG growth company, and that was the fifth time in the last seven years. So clearly a lot of people are cracking open a lot of our beverages. So we were quite pleased with it and Modelo led the charge. As you all know, Modelo took over as the number one beer by dollars in the US last year, and it's just been on fire, it's been phenomenal.

BRIAN SOZZI: Yeah, Bill. After this week in markets, that's Brian here, I could use about eight Coronas. I mean, it's been one hell of a week. But look--

BILL NEWLANDS: Well, help yourself. It's a great idea.

BRIAN SOZZI: You got the-- you have the email address, Bill. But look, really, I mean, a lot of companies and leaders in packaged foods, the industry lately have been talking about consumers pushing back on price increases. When you look at your business line by line, Do you see signs of consumer caution?

BILL NEWLANDS: We don't, but part of what I think has worked to our advantage is-- and we've talked about this before. We were a little more judicious over the course of the late pandemic about not over raising our prices. In fact, we got some heat for that in some instances. But our big thing was we didn't want to lose consumers. And we have great brand loyalty, which is obviously an important part as well. So we have been relatively immune to that because of that great brand loyalty and I think our approach to pricing over time, which has been well received at a consumer level.

SEANA SMITH: Bill, you talk about great brand loyalty. I'm curious just the confidence that you have right now maintaining that increased market share whether or not or if we do see Bud Light sales get a bit stronger. What does that more specifically then could mean for your business?

BILL NEWLANDS: Well, fortunately, we have a lot of things going in our favor. You know, Pacifica is up 17% last year. Our Gelato business was up 30% last year. We're extending our oral business, Modelo Oral, which was our light beer with only two skews last year was the number one growth driver was terrific. So, you know, we have a lot of avenues to continue to grow our business. And now we're introducing a number of things from our innovation. Aguas Frescas, which did a phenomenal job in the Nevada test market last year is being expanded to roughly 70% of the country. And, Brian, you'll probably like this. We're testing Corona sun brew this year in the northeast, and you can probably get some. It's going to be a phenomenal new product that I'm very excited about.

So we have a number of avenues to continue the excitement on our beer business.

BRIAN SOZZI: Yeah. I would like that, Bill, actually. I mean, yeah, I will happily give that a try. I want to do-- I want to ask you about the wine business. It's still not where I imagine you want it to be. Is the reality that we are just in a continued era of beer chugging? People just love their beer. They're going to drink their beer. And they just don't want wine. And then as a company that has a wine portfolio, I mean, How long can you stay committed to this?

BILL NEWLANDS: There's no question that there's been some challenge on the wine side of our business. Part of what we've done and we did a fairly deep dive in the last few months is we're going to spend a lot more time and focus on the critical brands that matter. We've got about 11 brands that represent 80% of our portfolio, and they're things like the Prisoner, and Mayumi, and Kim Crawford, and High West. And we're going to spend a lot more time and energy against those critical brands. They're higher on the price ladder. The biggest challenge in the wine business has been in the mainstream. But we've also got some tricks up our sleeve around Woodbridge, which is in the mainstream and one of our bigger brands.

So-- and we also named a new leader as you probably saw just recently, Sam Glaser, who brings 30 years of experience in the wine business. So we're still very bullish on that. We think our strategy is right. And we're looking forward to seeing improved results here as we move forward.

BRIAN SOZZI: Within the wine business, Bill-- Look, I have a lot of wine snob friends. It's their thing. It's their hobby. I know squat about wine. When you diagnose the brands that you have, Is it a labeling issue? Is it the taste of the wine? Is it that the mainstream consumer is just drinking Modelo?

BILL NEWLANDS: Well, I think it could be a little of all of that. You've seen some softness, but you tend to see the softness at the lower end of the business. The premium and luxury brands are doing fine. They're a little off their peak, but they're doing fine. So-- and we've seen these ebbs and flows historically. I think the important part is that we continue to focus our attention, do some price pulsing where necessary to give the consumer some extra value. And, again, this is part of the benefit of what we have with brands that are strong and have good consumer recognition. That's very important in a market that's a little bit more down than it's been historically.

BRAD SMITH: Bill, just lastly while we have you here. A world finance report found that Gen Z-ers, they're drinking on average 20% less than Millennials. I wonder how constellation is trying to get ahead of the shifting taste profiles of that next generation.

BILL NEWLANDS: You bet. That's been a very interesting discussion. One of our best intros from last year was Corona non-alcoholic. It was the number one growth driver in the non-alcoholic segment. So that's one example. Aguas Frescas I think will speak very much to flavor and betterment. You know, those are two areas that are more important with that consumer base you were just mentioning. But-- so we think there's a lot of things that we've got coming up that are going to create some differentiation and opportunities for that consumer that's looking for a little something different than perhaps the prior generations have.

SEANA SMITH: All right. Bill Newlands, always great to speak with you. Thanks so much for taking the time to join us here. CEO of Constellation Brands.

BILL NEWLANDS: Thanks very much for having me.

SEANA SMITH: And, of course, our thanks to Brian Sozzi as well.