Constellation Brands Inc (STZ) 2013 Q4 法說會逐字稿

Good morning.

My name is Laurie, and I will be your conference operator.

At this time, I would like to welcome everyone to the Constellation Brands' fourth-quarter 2013 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you.

I would now like to turn the conference over to Patty Yahn-Urlaub, Vice President of Investor Relations.

Please go ahead.

Thank you, Laurie.

Good morning, everyone, and welcome to Constellation's fourth-quarter and fiscal year-end 2013 conference call.

I'm here this morning with Rob Sands, our President and Chief Executive Officer, and Bob Ryder, 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 financial 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.

Although 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.

And now I'd like to turn the call over to Rob.

Thank you, Patty, and good morning, and welcome to our call.

Before we begin our year-end review of fiscal 2013, I would like to mention that I am very excited about the fact that we have reached an agreement in principle with the US Department of Justice, the finalization of which will allow Constellation to proceed with the acquisition of the remaining 50% interest in Crown Imports, as well as the Piedras Negras brewery in Mexico, and the perpetual brand rights for the Modelo portfolio in the US.

Earlier this week, we received unanimous approval from the Mexican Antitrust Commission, which further paves the way to completion of the revised deal between ABI and Constellation.

This transaction represents a significant milestone for Constellation, as it is the most transformational acquisition in the history of our Company.

It will solidify our place in the US beer market for the long term as the perpetual brand owner and producer of the iconic Modelo beer portfolio, which includes Corona Extra, the best-selling imported beer, Corona Light, the leading imported light beer, and Modelo Especial, the third-largest and one of the fastest growing major imported beer brands.

Overall, this deal will allow us to nearly double the sales of our Company, diversify our profit stream, significantly enhance our earnings and free cash flow, and provide new avenues for growth.

It will also reestablish Constellation's position as the largest multi-category supplier for beer, wine, and spirits.

We will not only be the third-largest total beverage alcohol company in the US, but the number three brewer and seller of beer for the US market.

I would like to reiterate that there are three key components of the new beer transaction.

Number one, Constellation will purchase the remaining 50% of Crown that we do not already own, giving us complete independent control of distribution, marketing, promotion and pricing, as the new brand owner in the US.

Number two, Constellation will be granted a perpetual, non-terminable license for the import and distribution of the Modelo brand that Crown currently sells in the US, with exclusive rights to the brands, and freedom to develop brand extensions and innovations for the US market.

Number three, Constellation will acquire one of the world's largest and most state-of-the-art brewing facilities in Piedras Negras, Mexico, as well as the full profit stream associated with all sales of the Modelo brands in the US.

Now, the Piedras Negras brewery is the crown jewel of production for Modelo.

The brewery is self-sufficient, utilizes state-of-the-art technology, and was built to be readily expanded to increase production capacity.

Constellation's purchase of the Piedras Negras brewery provides independence of supply for Crown, and complete control of the production of the Modelo brands for marketing and distribution in the US.

Current capacity for this facility is approximately 10 million hectoliters, or about 120 million cases, with scalability to 30 million hectoliters.

Our goal within the next three years is to expand Piedras Negras' capacity from 10 million hectoliters to 20 million hectoliters, which we project will be more than enough to supply 100% of the US market into the foreseeable future.

During this three-year time frame, Constellation and ABI will enter into an interim supply agreement.

This was intended to ensure continuity of supply, and quality of products, with the expectation that Constellation will become fully self-sufficient thereafter.

During this period, Constellation will purchase product at a fixed price per case, subject to an annual adjustment based on the US Consumer Price Index.

In addition, Constellation and ABI will enter into a transition services agreement, primarily to provide Constellation with brewery operations and general management assistance, brewery expansion consulting and technical support, and brewery procurement and logistics services.

For nearly two decades, Constellation, either directly or through Crown, has imported, marketed, and sold the Modelo brands in the US.

During this time, the Crown team has successfully built the Modelo portfolio into an enviable position of leadership and growth, driven by their strength and brand building, and the strong relationships they have established with our distributors and retailers.

And now I would like to focus our discussion on Constellation's year-end fiscal-2013 sales and earnings results.

Now, I am very, very pleased with our results for fiscal 2013, and we executed against all of our key strategic goals and initiatives for the year.

As you know, fiscal 2013 represented a year of investment in new products and brand-building activity, particularly for our US wine and spirits business.

We launched approximately 50 new items, including new brands, product line extensions and packaging innovations.

Many of these activities represented existing brand extensions, where we leveraged the equity of our Focus Brands to capture opportunities that were designated or designed to meet changing consumer taste preferences for more fruit forward and easier drinking wines.

We targeted hot categories, experiencing significant growth like Moscato, Malbec and sweet red blends, launching brands like Rex-Goliath Free Range Red, which won the 2012 Best Red Wine under $8 from the World Value Wine Challenge Competition.

We also increased national advertising support for certain key brands like Kim Crawford, which launched its undue ordinary media print campaign centered on art and fashion lifestyles.

I am proud to announce that Kim Crawford recently surpassed the 1-million-case mark in global sales, which is a great new milestone for this popular brand.

From a TV advertising perspective, we aired commercials supporting our fast-growing Black Box, Simply Naked, and SVEDKA vodka brands, as well as our largest brand, Woodbridge by Robert Mondavi.

We purchased Mark West, a top-selling Pinot Noir brand and a fabulous addition to our portfolio, which posted double-digit sales depletion in Symphony IRI growth trends for the year.

Overall, throughout fiscal 2013, our US wine and spirits business benefited from ongoing consumer trade-up trends, positive mix, distribution gains at retail, and great consumer response to our new product introductions in the marketplace.

Collectively, these activities helped to drive excellent marketplace momentum, including market share gains and above-market depletion trends of nearly 4% across our entire US wine and spirits portfolio, while our collection of Focus Brands grew at almost double that rate for the year.

As a result of our efforts, we are garnering more awards and recognition than ever before from prominent industry publications, particularly for our new products and our Focus Brands.

They include the following.

Constellation had 9 brands on this year's Symphony IRI list of Top 30 Momentum Table Wine Brands for 2012.

We won 11 2012 Hot Brand Awards from Impact Magazine, and several of our new brands landed on Beverage Information Group's list of 2013 growth brand awards.

Our Focus Brands that received these awards included Kim Crawford, Clos du Bois, Mark West, SVEDKA, Ruffino, Rex-Goliath, and Woodbridge, just to name a few; and our new product offerings included on the awards list included Simply Naked, The Dreaming Tree, Primal Roots, and Thorny Rose.

Now, from a spirits perspective, for fiscal 2013, SVEDKA posted double-digit consumer take-away trends in Symphony IRI channels, in addition to gaining volume and dollar share of the vodka category.

SVEDKA is currently the number-two imported vodka brand, and a Top 10 spirits brand in the United States.

During the fourth quarter, we launched and added two new unique flavors, Strawberry Colada and Orange Cream Pop to SVEDKA's flavor lineup.

For the year, Black Velvet grew double digits in Symphony IRI channels, driven by the popularity of Black Velvet Toasted Caramel, which recently received a 90-point rating from the Wine Enthusiast magazine, and a gold medal from Beverage Testing Institute's International Review of Spirits award.

Now, in addition, we are on the cusp of launching the new Black Velvet Cinnamon Rush, as we continue to build on the momentum of Toasted Caramel with a new flavor innovation.

Heading into fiscal 2014, the overarching strategy for our wine and spirits business includes three key tenets.

Number one, it's keep our big brands healthy.

And number two, continue our focus on innovation and new products.

And lastly, number three, plan to drive those key Focus Brands that have the greatest growth potential, although this will require some additional marketing investment in 2014.

In a few minutes, Bob will provide additional details regarding how this factors into our wine and spirits growth model for the year.

Overall, our goal is to maintain our strong marketplace momentum, and pursue market share gains for our wine and spirits business in fiscal 2014.

Now, moving to the Crown Imports joint venture.

Crown had another exceptional year, driving record sales for Modelo Especial, Corona Light, Negro Modelo and Pacifico, while posting positive depletion trends for all major Modelo brands.

Corona Extra exceeded the 100-million-case mark for the year, and was the only imported brand to achieve this sales milestone.

Calendar-year 2012 marked the 16th consecutive year that Corona Extra remained the leader in the imported beer category.

Corona Extra continues to blaze new trails through marketing investments with sports properties that are strategic for the brand, like the National Football League, Major League Baseball, the National Basketball Association, and NCAA basketball.

As for Corona Light, it continues to strengthen its own identity, with its new advertising campaign that is driving consumers to trade up from domestic lights.

Overall, this brand is outpacing the premium light category, and is growing across all major geographies.

One of the gems of the Crown portfolio, Modelo Especial, achieved a new milestone in calendar 2012, by surpassing 40 million cases in depletions.

The brand also became the number-two import beer in the US convenience store channel on a volume basis.

While draft represents only a small part of the Crown overall volume, depletions grew almost 60% for this format, increasing brand recognition for the Corona Light, Negro Modelo and Pacifico brands throughout fiscal 2013.

I am also very proud of Crown's long list of achievements for fiscal 2013, which include the following.

Corona was named one of the best global brands by Interbrand, and was only one of three brands to be recognized.

MarketWatch not only recognized Modelo Especial as a Hot Brand award winner for the 19th consecutive year, but also awarded this brand its Leaders' Choice Beer Brand of the Year award.

In addition, Modelo Especial ranked as the number-one momentum beer brand in 2012 in Symphony IRI channels.

And finally, Impact Magazine announced that Modelo Especial, Corona Light and Pacifico were all Blue Chip Brand award winners in 2012.

Collectively, the initiatives I've just outlined contributed to Crown's strong marketplace performance, as the business grew depletions in the 3% to 4% range in fiscal 2013.

Overall, this is the third consecutive year that Crown has outperformed the import and total US beer categories, which demonstrates the strength of the Crown brand portfolio in its marketing programs and execution at retail.

I am excited about Crown's organic growth prospects for fiscal 2014, as we are once again targeting sales and depletion trends to exceed the US beer industry and import trends.

Although it's premature to discuss the entirety of our plans for the upcoming year, some of the initiatives that we have underway include the following.

Crown plans to launch Modelo Especial [Colada] by early fall, which is expected to build on the brand strength of Modelo Especial.

This product will tap into a new occasion for this brand's core Hispanic consumer.

Modelo Especial also added a broadcast sponsorship of the Gold Cup, a soccer tournament of 25 matches in 13 US cities, which will help to build the brand's awareness and trial.

Crown is planning draft format market expansions for Corona Light, Negro Modelo and Pacifico.

Corona Extra will debut new TV advertising under its Find Your Beach campaign, while launching new ads for the Hispanic market.

Crown's new advertising for Corona Light, beginning this spring, will be supplemented by a combined TV, digital, and social media campaign.

Corona Light will also sponsor Kenny Chesney's 2013 US tour, leveraging Kroger as a strategic retail partner, through its Rhythm and Brews program.

Pacifico will debut its first TV ads in Southern California.

The New Pacifico, Discovered in Baja, Imported by Surfers campaign includes several TV ads that tell the Pacifico story in an emotional way.

And finally, during 2014, Chef Rick Bayless will work with Crown to promote Negro Modelo, Pacifico and Victoria, creating recipes and unique food pairing options for each brand that can be leveraged at retail.

In closing, we had a great year, driving above-market depletion growth and market share gains across our beer, wine and spirits businesses.

I am very excited about the Crown deal, as Constellation's full ownership of this great beer business provides an additional strategic lever for driving profitable organic growth.

I look forward to meeting with you in New York on June 5 to discuss the future strategy for our Business.

I would now like to turn the call over to Bob for a financial discussion of our year-end business results, and our outlook for fiscal 2014.

Thanks, Rob.

Good morning, everyone.

Our comparable-basis diluted EPS for fiscal 2013 came in at $2.19, and free cash flow came in at $494 million.

Our results reflect a slightly lower than expected effective tax rate.

Exclusive of the tax rate, our results were generally in line with our expectations.

Given those brief highlights, let's look at fiscal-2013 performance in more detail, where my comments will generally focus on comparable financial results.

As you can see from our news release, wine and spirits net sales on an organic constant-currency basis increased 3%, as higher volume and favorable mix were partially offset by higher promotional costs.

Our brand-building investments and innovation efforts have contributed to improvement in our top line and depletion trend, and have helped drive our market share gains for our wine and spirit business.

The acquisition of Mark West and the remaining interest in Ruffino provided further contribution to our growth, as total net sales for the year increased 5%.

For the year, our consolidated gross margin was 39.9%, versus 40.1% in the prior year.

This result was generally in line with our expectations, and reflects the impact of higher promotional spending and cost of goods sold, mostly offset by the benefits from the consolidation of the higher-margin Ruffino and Mark West brands, and favorable organic product mix.

Wine and spirits segment operating income increased $28 million, to $650 million, primarily due to sales growth, as operating margin for this segment remained fairly consistent.

Corporate costs increased $12 million, primarily due to higher compensation-related costs, higher costs associated with our technology investments, and the overlap of a benefit recognized last year from the early redemption of notes receivable from Accolade, our former Australian and UK business.

Consolidated equity earnings totaled $234 million, versus $229 million in the prior year.

Equity earnings for Crown totaled $221 million, versus $215 million in the prior year.

When we acquired the remaining interest of Ruffino in the second half of fiscal '12, reporting for this business moved out of equity earnings.

The reduction in equity earnings in fiscal '13 as a result of this reporting change was offset by strong profit growth from our Opus One joint venture.

For the year, Crown generated net sales of $2.6 billion, an increase of 5%, and operating income of $448 million, an increase of 4%.

The net sales increase was largely driven by volume growth, led by strong double-digit growth of Modelo Especial, which sailed past the $40-million-case mark this year (sic - see press release "40-million-case mark").

Overall portfolio growth was tempered by the loss of St.

Pauli Girl brand volume at the end of Q1.

The increase in operating income primarily reflects volume growth.

Interest expense for the year was $227 million, up 25% versus the last year.

The increase was primarily due to higher average debt balances.

To better help frame the drivers of interest increase, let me discuss our debt position, which saw quite a bit of activity in fiscal '13, with more to come in fiscal '14.

At the end of February, our total debt was $3.3 billion.

This represents a $176-million increase from our debt level at the end of fiscal 2012.

We also finished February with $332 million of cash on our balance sheet, an increase of $246 million versus the prior year end.

The higher than normal cash balance primarily relates to the funding of the pending beer acquisition.

After factoring in the cash, our net debt at the end of February was just under $3 billion, and slightly below the net debt balance at the end of fiscal 2012.

Our net-debt-to-comparable-basis-EBITDA ratio moved down to 3.3 times at the end of fiscal 2013.

As a reminder, during the first quarter of fiscal '13, we refinanced our senior credit facility, and issued $600 million of 6% 10-year senior notes.

Proceeds from this note issuance, along with our free cash flow generation and proceeds from stock option exercises, were effectively used to reduce borrowings under our revolving credit facility, and to fund the Mark West acquisition and the Q1 stock repurchases.

These repurchases totaled 18 million shares at a cost of $383 million.

In addition, near the end of Q2, as part of securing the permanent financing for the original $1.85 billion Crown transaction, we issued $650 million of 4.625% senior notes due 2023.

The cash proceeds from the note issuance were placed in escrow.

Because of differences between the terms of the original Crown Imports acquisition agreement announced in June 2012, and the revised transaction agreement announced in February '13, the $650 million of notes were redeemed with the escrowed proceeds before the end of fiscal 2013.

We recognized and paid interest for the period that these notes were outstanding.

Our comparable-basis effective tax rate came in at 26% for fiscal 2013.

This rate included the benefit of higher foreign tax credits, and compares to a 17% rate for fiscal 2012, which reflected the favorable outcome of various tax items.

Now let's briefly discuss the fourth quarter.

Comparable-basis diluted EPS for the quarter came in at $0.47.

This compares to $0.69 for Q4 last year, which included the recognition of the significant tax rate benefits.

The wine and spirits performance in the quarter was strong, with organic constant-currency net sales up 8%, driven by volume growth and favorable product mix.

Crown's results were tempered by the overlap of a strong Q4 in fiscal '12, fewer selling days in the quarter versus the prior-year period, and the loss of the St.

Pauli Girl volume.

Crown's strong retail performance in IRI channels continued in Q4.

Now let's discuss free cash flow, which we define as net cash provided by operating activities, less CapEx.

For fiscal '13, we generated free cash flow of $494 million, which was at the high end of our guidance range, and compares to $715 million in fiscal '12.

The decrease primarily reflects the receipt of tax refunds in the prior-year period that were driven by the sale of our UK business, and in higher US grape and bulk wine purchases in fiscal 2013, following the lighter grape harvest in fiscal 2012.

In addition, we saw higher interest costs from the debt activity highlighted earlier.

Now let me highlight some financial details related to the pending acquisition activities for the beer business, before discussing our fiscal-2014 guidance.

In February, we added the acquisition of the Piedras Negras Brewery and the perpetual brand rights for the Modelo brands in the US to the previously agreed transaction to acquire the remaining 50% of Crown.

This new transaction is expected to close around the end of the first quarter of fiscal '14, or shortly thereafter.

The initial purchase price for the combined transaction is $4.75 billion.

This includes $1.85 billion for the remaining interest in Crown, which represents an 8.5 times multiple of the acquired EBIT of Crown for fiscal 2012.

The remaining $2.9 billion for the brewery and perpetual brand rights represented a 9.3 times multiple, based on the initial assumed EBITDA of $310 million, which represented the estimated profit stream from Modelo's sale of beer to Crown for calendar 2012.

The $2.9 billion purchase price is subject to a post-closing adjustment.

The purchase price adjustment will be equal to 9.3 times multiple for each $1 above or below the initial assumed $310 million EBITDA amount.

The adjustment payment is capped at an EBITDA level of $370 million, even if the calendar-2012 EBITDA amount is determined to be higher than the $370 million.

We anticipate that the post-closing payment will occur in fiscal '15.

We further committed bridge financing in place for the acquisition activities -- sorry, we have fully committed bridge financing.

Permanent financing is expected to consist of a combination of senior notes and term loans, with the remainder of the funding coming from the Company's revolving credit facility, accounts receivable securitization facility, and available cash.

Now let's move to our full-year fiscal '14 outlook.

We're forecasting comparable-basis diluted EPS to be in the range of $2.55 to $2.85 a share, and free cash flow to be in the range of $475 million to $575 million.

These projections assume the beer transaction closes at the end of Q1 of fiscal 2014, and exclude any acquisition accounting impacts or any variation from the statutory effective tax rate for the beer transaction.

For our wine and spirits business, we are targeting to grow volume at least in line with the US wine and spirits category, and generate favorable product mix in fiscal '14.

This should put organic revenue growth in the mid-single-digit range.

The anticipated impact of higher grape costs and the additional marketing investments highlighted by Rob are expected to result in low- to mid-single-digit operating income growth for the wine and spirits business.

For the beer business, Crown is targeting depletions and net sales growth in the low- to mid-single-digit range.

Operating income growth for Crown, before any benefits from beer manufacturing and brand owner profit, is expected to be in the mid-single-digit range.

Although a finalized amount is not yet available, we currently estimate the EBITDA associated with the profit stream from Modelo's sale of beer to Crown Imports in calendar 2012 was approximately $370 million, versus the initial assumed amount of $310 million.

Depreciation and amortization associated with the 2012 brewery profit stream is estimated to be around $50 million.

In fiscal 2014, we will see less than a full year of beer manufacturing and brand owner profit.

We expect beer input cost inflation in the mid-single-digit range, and we anticipate the peso-to-US-dollar exchange rate to be less favorable versus calendar 2012.

We anticipate the cost of the COGS inflation and ForEx rate change to be in the $20 million to $40 million range, as compared to the calendar-2012 brewery profits.

Our guidance also includes the following assumptions.

Interest expense in the range of $345 million to $355 million; tax rate approximating 37%; and weighted average diluted shares outstanding of approximately 199 million.

The targeted increase versus last year of the shares outstanding is being driven by the significant increase in our stock price and the related impact that this stock price improvement is expected to have on stock option exercises and diluted shares outstanding.

Our free cash flow guidance includes capital expenditures in the range of $200 million to $230 million.

This includes CapEx of $80 million to $90 million, primarily related to our wine and spirits business, and $120 million to $140 million for expansion activities at the Piedras Negras Brewery.

The anticipated increase in wine and spirits CapEx represents investments to support the anticipated future growth of the business.

We have recently refined our estimate of the total CapEx associated with our brewery expansion plans, and we now expect to spend between $500 million and $600 million over a three-year period, as part of our plan to increase brewery capacity from 10 million hectoliters to 20 million hectoliters.

Fiscal '14 CapEx for the brewery expansion is proportionately lighter, due to the timing of the transaction close.

Our comparable-basis guidance excludes restructuring charges and unusual items, which are detailed on the last page of our press release.

We currently estimate the one-time items associated with the beer transaction to approximate $80 million in fiscal 2014.

This includes approximately $50 million primarily related to professional services and transition costs associated with the transaction, which will negatively impact our free cash flow for the year.

The remaining $30 million of one-time costs is for financing-related fees.

The payment for these fees is included in the financing section of our cash flow statement.

I would like to emphasize that the one-time costs and tax rate projections factored in the guidance I just highlighted are based on preliminary estimates.

This is an exciting time at Constellation.

In fiscal '13, we met or exceeded our initial guidance for the year, and we demonstrated very positive commercial success across wine, spirits and beer, as we gained market share in all three categories.

We demonstrated organic sales growth, greatly improved energy around new product introductions, and we added the fast-growing, high-margin Mark West brand to our wine portfolio.

Our strong free cash flow was utilized to buy back almost 10% of shares outstanding, at a price more than 50% below our current stock price.

We also reduced our net debt, and we used our free cash flow to acquire Mark West in an accretive transaction.

As we enter 2014, there's even more good news, as our sales momentum continues, and once again, we expect to gain share across the growing and high-margin beverage alcohol categories.

In addition, we expect to grow organic EBIT at a better rate than in fiscal '13.

As outlined by Rob, we are moving towards completion of the beer transaction.

The structure of the transaction makes us a completely autonomous competitor in the healthy US beer industry, exclusively at the growing high end of the market.

This transaction diversifies our consumer base, essentially doubles our annual sales and operating profits, and greatly enhances our operating margins.

Over the medium and longer term, it dramatically increases free cash flow, and helps smooth out cash flow receipts over our fiscal-year period.

We are financing the deal in a very favorable interest rate environment, with an all-in interest rate targeted in the 3% to 4% range.

Although our leverage will be in the low-5-times range when factoring in a full year of acquisition earnings, we expect to focus on debt pay down and to delever at a good pace, and we expect to be below 4 times in approximately two years.

This deleverage alone should create some dramatic improvements in earnings per share and free cash flow.

With that, we're happy to take your questions.

(Operator Instructions)

The first question comes from the line of Tim Ramey of D.A. Davidson.

Wow.

Just so many congratulations on this year and this deal.

It is truly transformational.

As we think about '14, Rob, I was intrigued by your comments that you do expect to see some margin pressure in wine.

And we've had this argument that we should begin to see wine pricing improving as the grape supply/demand balance improves.

Can you expand a bit on that?

Sure, Tim.

We do have higher grape costs coming through from the calendar year 2011 and 2012 grape harvest.

So that's what's primarily putting the margin pressure on the wine side.

Now as it relates to pricing, we've seen pricing in the low end of the market, meaning below $5, which doesn't really impact us, because we don't really have a significant portion of our portfolio in this segment.

But generally, in the segments which we call premium plus, $5 and above, or sort of the mainstream of the commercial wine business, between $5 and $15, we've actually seen very little to no pricing, when you start looking at the market on a brand-by-brand and SKU-by-SKU basis.

And I say brand-by-brand and SKU-by-SKU, because if you're looking at IRI data, you have to be very careful to take into account that it appears that there's pricing, but it's really all mix-related, as the higher price products continue to grow at a faster rate than the lower price products.

So it's primarily higher grape costs coming through and no pricing which is driving some margin erosion, but a relatively modest level of margin erosion.

Now right now, I would say our basic strategy is to continue to invest behind our Focus Brands to drive market share growth and make sure that they remain healthy, so that when the opportunity does arise, we will be able to leverage the P&L to take advantage of the investments that we've made and the strength that we've achieved for our big brands and our Focus Brands.

Great.

And just a follow-up on the Modelo Colada launch, if I heard you correctly, by fall.

Is that innovation that occurred strictly by Crown, or is that also something that Modelo corporate is launching, as well?

Yes.

By the way, that's Chelada.

Chelada.

Okay, sorry.

It would be a very strange combination to have a beer colada.

I was going to let you explain it.

(Laughter)

We're not doing coconut beer, just to be clear.

It would be innovative.

You know, it really would be.

But Chelada, just for everybody's information, if you're not familiar with it, is basically a combination of tomato juice or Clamato juice and beer, and it's a typically consumed combination.

And the answer is, is that that's strictly a Crown innovation, although Modelo does have Cheladas in Mexico.

So it is a Crown innovation for the US.

Doesn't sound any worse than putting coconut juice in it.

Thanks.

Well, it's actually quite tasty.

(Laughter)

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

Great.

Thank you.

So my first question is on the beer business, when I think about your guidance, I think you said depletions and net sales are pretty much in line with each other, which I guess implies very little, if not any, pricing in 2014.

Just given the cost inflation, I was curious how you're thinking about pricing opportunity on Crown in 2014.

Yes.

I think what we said, Judy, is low to mid-single digits on the depletions and the net sales, and mid-single digits on EBIT.

As it relates to pricing, generally, we're just simply not going to comment on pricing, primarily because it's so uncertain, basically at this point, as to what's going to happen in the marketplace.

But that said, we're obviously pretty confident in our guidance of low to mid-single digit growth rate on the top line, which will put us in a position of gaining market share in beer once again.

And we should be able to leverage that on the bottom line to mid-single digit EBIT growth.

Okay.

And then just thinking about more of a medium to long term opportunity with capacity expansion in Piedras Negras, can you maybe either qualitatively or give us some color as to what kind of margins you think is more of an appropriate margin once you move all of the capacity into Piedras Negras?

And what's in your long-term assumption?

Yes.

Judy, this is Bob.

So the way this will work, we have a transition services agreement with InBev in order to secure the fact that we can keep the US consumers happy with all our wonderful products.

As we build out the Piedras Negras facility, the manufacturing will shift from InBev facilities to our own Piedras Negras facility.

The Piedras Negras facility is very efficient, so it will be able to produce beer at a lower cost than we are buying that beer from InBev for.

So over time, margins will improve because of that production shift from less efficient brewery to more efficient brewery.

So you have that going on.

Then you have the same dynamics that all the beer players have, in what's going on with input cost, what's going on with core brewery efficiencies, what's going on in US pricing dynamics.

But what's unique for us is the shift of production from InBev to Piedras Negras.

And we expect that by the end of three years, we will be making all of our own beer, because as you get up to a $20 million hectoliter capacity, that should be enough production capacity to last us, say, five to seven years.

Okay.

Got it.

But your guidance for 2014 does not assume any of that benefit, because it's more medium to long-term opportunity?

That's correct.

There's a bit of efficiencies from some warehouse capital spend.

But because of the late start to this year, most of the capital spend we're making will not result in increased production capacity.

It will be like down payments on long lead time equipment, engineering drawing, things like that.

Okay.

And Bob, on the free cash flow guidance -- and it relates to your leverage target.

So if I hear you, you're saying you're in the low 5's today.

In two years, you think that will step down to below 4 times, assuming with the free cash flow generation.

So it implies maybe a free cash flow -- ongoing free cash flow number of, say, maybe a $700 million, $800 million per year versus this year, which I guess we're seeing somewhere around $475 million to $575 million.

So can you comment on what is the right ongoing free cash flow number, and what's driving that step up from this year into the next couple of years?

Yes.

I'd say, without giving specific numbers, the two big drivers will be reduced leverage and reduced interest expense as we delever; reduced capital spending, but that won't happen until year four, because we'll be spending capital on the brewery for years one, two, three.

And actually, year two and year three will be higher than year one, right?

And increased profits from the manufacturing of the beer, because we'll be making it in our facility versus InBev making it in theirs.

And then add on to that, that our product categories are in high margin, high growth -- it's a high margin, high growth industry.

Okay.

And also, Judy, as we get past the first year, we'll most likely have lower one-time costs, right?

Because we have the initial financing fees and the initial professional service and transition costs that are going to hit us next year, which I talked about in my script.

The $80 million in total?

Correct.

Total of $80 million.

Right.

Okay.

Understood.

Thank you.

There's some pretty big numbers, all going in our favor as we go forward.

And you'll see that as we start to delever, we should get some very good free cash flow and EPS leverage, as we move out into time.

Right.

Okay.

Got it.

Thank you very much.

our next question comes from the line of Kaumil Gajrawala of UBS.

On the spread between revenues and operating income for wine, is it that you're now in the second year of your step up of marketing promo and new product development, and that you feel you still need to spend up for an additional 12 months, but we get to a point in the curve where we can start to see some operating leverage?

Or is what you're seeing in the market simply that in order to sustain this level of revenue growth, that it just requires this level of spending?

Yes.

I would say, Kaumil, it's the former, as you described it, which is that we're choosing to step up our investment this year again, really to continue to drive the kind of momentum in our Focus Brands that we achieved last year.

And as well to drive continued innovation this year, we'll introduce approximately 25 new products/line extension SKUs, and this will require some additional investment, which is going to flow through the marketing line.

We also, as I mentioned, do have the higher grape costs flowing through, but the plan is definitely to make these investments with a view towards translating that into P&L leverage at some point in the medium term future.

So we do expect these investments to pay back.

We do think it's the right thing to do for the brands.

We think it's the right thing to do for the Company, and the health of the brands and the Company for the future.

But we do anticipate them to be investments with a significant return, and we do expect that to translate into leverage in the future on the wine and spirits side.

Got it.

And on the topic of grape pricing, it looks like over the next five to eight years or so, we're going to be going into a much tighter supply situation.

How differently should we be looking at or thinking about the next five years in wine versus what the last five years have been, which of course have been during a period of oversupply, and what specifically does that mean for you guys?

Yes.

I think that it's actually going to benefit the big players on the wine side around the world, that have established relations with growers that have the capacity to purchase vineyards, and generally will be the beneficiaries of moving into tighter supply.

It will be the smaller and the more marginal players that will potentially be hurt to the greatest degree, because they simply don't have the clout and the leverage and the relationships to overcome the shortages.

Now that said, we're not expecting the market to turn from oversupply to severe shortage.

These things are usually overstated in the media and the press.

I think last year was a good example of that, the 2012 harvest.

Or when you look at how things transpired from 2011 to 2012, 2011 was a little short.

Everybody cried wolf, and there was going to be a grape shortage.

Turned out not to be a grape shortage.

2012 turned out to be the largest harvest in California that we've ever had.

There's actually plenty of wine and juice around.

It remains to see how 2013 will play out.

If you look around the world, Europe had a bad harvest, so there's some shortages there.

Australia continues to be in oversupply.

South Africa, oversupply.

California, sort of balance.

South America, balanced, depending on exactly where you're talking about.

So it's some, it's some.

You can't read the press and get too excited about it, because it tends to exaggerate both the oversupply and it tends to exaggerate the under supply.

So we don't really see, in either the short-term or the medium term, anything happening that is, I'll say, terribly unexpected or that will impact our operating results in a more material way than we'd indicated.

Okay.

Got it.

And then very quickly on taxes, you were at, I believe, 26% fiscal 2012.

You're looking for 37%.

That's a big jump.

Is it simply that there was some credits that disappear and no longer exist, or is there a chance for that 37% to be lower for fiscal '13?

Yes.

So as you know, Kaumil, the last four or five years, we've had some favorable outcomes in our tax rate.

And our effective tax rates probably average maybe 30%, or even below that.

And last year was a very low rate.

What those five years included were some positive outcomes from foreign tax credits.

Now, before this acquisition that we're talking about, we had a lot of foreign operations historically, but this year would have drained all those foreign tax credits.

So we would not have had any more going forward, okay?

This would have been the last year of those positives.

For the beer transaction, we've essentially given guidance at the statutory tax rate.

It will not be worse than that.

Because the beer transaction is so new, we haven't baked in any potential tax rate upside, so -- if there even is any.

We don't know if there even is any.

So we'll be keeping people advised of this as we go forward.

The tax rate shouldn't get worse, but it also may not get better.

Got it.

Thank you.

Your next question comes from the line of Alice Longley of Buckingham Research.

Hello.

Good morning.

I have a question about Crown sales in the fourth quarter.

I think they were up 1%.

Can you break out how much that was hurt by the calendar, how much St.

Pauli Girl, how much weather?

I suspect that hurt you some in February.

And then, how much pricing was in the 1%?

Thank you.

Yes.

So you're correct.

The beer industry had a-- if people remember -- had a very strong end last year.

Volumes were very good.

So we were -- and we participated in that --so we were overlapping a positive period in the prior year.

In addition, in the fourth quarter, there were two fewer selling days in this year's fourth quarter versus last year's fourth quarter.

So that doesn't seem like a lot, but it is in a quarter.

And you are correct, as we did not have St.

Pauli Girl this year.

I don't think we had it in last year's fourth quarter, either.

On a full-year basis, St.

Pauli Girl this year, we sold a little less than 1 million cases.

And the previous year we sold probably twice that, a little bit more than 2 million cases.

So there was some St.

Pauli Girl overlap.

In the grand scheme of things, St.

Pauli Girl was not a big piece of our business.

So I'd say that the big pieces were the selling days and the overlap of the positive weather in the previous year.

Now, that was our reported sales.

As you'll see, we still did fine on earnings in the fourth quarter.

I think they were up 4%.

And if you look at IRI or market trends, we were still doing great.

So it was really just as we look at shipments year over year and a lot of shipment day influence.

But would you guess that adjusted for those items, maybe your sales would have been up 3% to 4%?

I haven't done that calculation.

And was there any pricing in there?

Well, the only pricing in there -- and remember, we took pricing, as did the rest of the beer industry, but we took less, in October of calendar '12.

Right.

So that pricing move is a positive margin enhancement throughout fiscal '14, as well.

So it's a positive in the fourth quarter of fiscal '13 and throughout fiscal '14 that will carry through, and that is part of the reason why our guidance is that operating profits will grow more than net sales and than volumes.

And I think you indicated before that maybe that pricing is averaging about 2%.

Did you get that in the fourth quarter?

Yes.

In October, we took pricing of just under 2%.

That's across our total portfolio.

And the pricing was very different by geographies and by SKU.

But in general, it was just under 2%.

Okay.

And just one other question.

The ad ratio for the company overall?

I know that you're investing in it, but is the ratio going to be up, or is the advertising going to be up in line with sales?

Yes.

Advertising in total and advertising as a percentage of sales will be up in the wine and spirits business.

And it's still -- in the wine and spirits business, it's still not a huge number.

It's between 4% and 5%.

So in fiscal '12, it was closer to 4% -- I'm sorry, in fiscal '13, it was closer to 4%.

In fiscal '14, it will be closer to 5%.

In the beer business, there's a lot more advertising.

It's more like 8% of sales.

That will be consistent in fiscal '14 versus what it was in fiscal '13.

Are you going to break out sales?

Sorry, go ahead.

Are you going to be breaking out sales and profits for wine and spirits versus beer, going ahead?

Are we going to see the two separately?

Yes.

Most likely what our segment reporting will look like is you will have a beer segment, which will include what we currently call Crown, plus the brewery.

So that will be a complete segment from buying the raw materials through selling through to the distributors, and we will continue with our wine and spirits segment and our corporate segments.

That's most likely.

We haven't completely landed on that, but that's probably what we will have.

Okay.

Thank you very much.

Sure.

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

Good morning.

This is Sarah Miller on for Bill.

Our question today is around the beer business -- or, the wine business.

The 8% organic growth that you posted this time seems to be -- well, it's higher than what you've been posting in recent years.

And just wondering, was there anything in particular that drove that higher level?

Was there a specific brand?

And could you give some color around whether this is sustainable going forward?

Sure.

The fourth quarter, as Rob stated in his script, the fourth quarter had very good top line results for wine.

Now there's a lot of seasonality involved.

And as we said in the scripts, too, you should look at the full year versus the quarter.

But the fourth quarter is a big quarter in the wine and spirits business.

So we had a lot of our promotional and sales focus on the fourth quarter.

In addition, a lot of the new product introductions -- and as Rob said, there were about 50 -- really started to gain additional distribution as we entered the end of the third quarter and the beginning of the fourth quarter.

So they had much better distribution in the fourth quarter this year versus the fourth quarter of last year.

So I'd say it was promotional and sales execution focus in that time period, and increased distribution for our new products were the two big drivers.

Do you foresee that staying pretty similar going forward, to be able to sustain this higher level of sales?

No.

As we said in our guidance, we expect wine and spirit sales to be in the mid-single digit for fiscal '14.

Okay.

Thank you.

And again, I'd encourage everybody to look at the full year results versus the individual quarters.

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

Thanks.

Good morning, guys.

A few questions.

Rob, it sounds like once you get past fiscal '14, you still feel pretty good about the wine and spirits business' ability to put up mid-single digit type EBIT growth.

Is that still your long-term view of that business?

Yes.

Okay.

And on Piedras Negras, can you speak to procurement specifically?

It seems like the point of debate out there, you guys seem to have some scale you could actually bring to the advantage of that business' procurement needs.

When you think about what the current procurement costs are of that business and how they might unfold in the future once you have ownership and ultimately full production there, is that an advantage you bring to the business or is it an advantage that goes away?

Modelo doesn't seem like it's the strongest of procurement as it could be, so can you just speak to that topic?

Yes.

We think that generally, Mark, it will be an advantage to the business on all of the -- or on the major components of COGS.

So what are the major components of COGS?

The major components of COGS in the beer business are glass and freight, which constitute about 70% of total COGS.

And when we look at the potentiality of combining some of our wine and spirits procurement activities around, as they said, those components, we do think that it's got the potential of being advantageous to the business.

Some of the smaller areas of COGS, mall tops, crowns, things to this effect, cans, should be relatively neutral.

But the major components, we may have some advantage.

That's great.

And I don't know if June 5 is too soon, but as we think about June 5 and whether it's procurement or this topic that, Bob, you were talking about, the advantages of putting all of the production into one facility over the next few years, are you going to lay out for us a view of the three-year pro forma scenario of what this new entity that, from a beer perspective, will look like?

Are we going to speak more qualitatively, is it something that comes a year -- how are you thinking about how you choose to communicate on what might be achieved here ultimately?

Yes.

I think we won't be giving detailed three years, because you said, it's just too early.

But we will be giving some flavor around what we look like, how much free cash flow can this thing generate, what are the COGS make up, how are we advantaged, disadvantaged.

We will be giving additional flavor around the beer transaction.

We'll also be spending a reasonable amount of time around the marketing end of both wine and beer, with a lot of focus around new product introductions and some focus around sales execution and some of the things we have cooking there, and some of the processes that we've put in place.

Because, as Rob said, look, we're fortunate to be in, I'll say, fast growing, high margin categories.

High end imported beer, premium wine, premium spirits.

And our goal is to maintain or grow share in those categories, which ends up with a pretty nice top line.

And as Rob said, we hope to have the bottom line growing at or better than the top line in the reasonable near future.

So I don't think we'll be giving detailed three-year financials, but we'll be talking around those themes.

That's great.

That's very helpful.

And then finally, just thinking about the cash flow profile of the business two years out, obviously a lot higher than what it's been historically.

The leverage comes down.

You're now, as you say, multi-category.

You're comparatively small in spirits, much larger in beer and wine.

Do you think spirits becomes a higher priority, in terms of your acquisition interest?

Do you continue to be more focused on wine and beer?

As you think about those three categories, how does your thinking about emphasis change?

You know, it's a little hard to judge.

Clearly, wine and beer would be areas that make logical sense; however -- and spirits, for that matter, makes a lot of sense.

We like the spirits business.

We'd like to be bigger in the spirits business.

But it's really all a function of what opportunities are out there and the economics of those opportunities.

First and foremost, we've got to get this deal closed.

We've got a few years of deleveraging to focus on.

That will go pretty quickly, due to the strong cash flow generation of the underlying business.

And then, as it relates to acquisition opportunities, all three categories are fertile ground for that, but we're not going to overpay.

We're not going to break our financial discipline.

And I think that the good thing is that we have a lot of opportunity to generate organic growth through innovation, really in all three categories, but particularly so in beer.

With our own state-of-the-art brewery and the kind of production capacity that we're putting in, we're designing that so that we can innovate in the high end of the beer market and create craft-style beers, for instance, that can take advantage of the growth in the high-end segment of the beer market, much along the lines of what we're doing with Rick Bayless.

So a lot of opportunity there.

And you're already seeing the innovation and the effect of the innovation we're doing on the wine side, where wine innovation constituted almost 6% of our sales in FY13, which is pretty similar, or pretty much spot on, with what the wine market overall did in general.

And we've really stepped up our innovation on the spirits side, which we're seeing some extremely positive momentum from, particularly on the addition of our new flavors.

We're going to be driving that, because the flavors segment of the vodka category is really where all of the really strong growth is.

And it's a much smaller segment of the vodka category than people really think.

It's only about 20% of the vodka category.

But you go out there and look at what's on the shelves, and it's actually astounding as to how much shelf space is being devoted to flavors in the vodka category versus what we call the straight 80-proof, which is the non-flavored version.

And interestingly enough, the flavored category has even better margins than the non-flavored category.

And what's going on in brown spirits and flavors, completely reinvigorated.

The brown spirits category, it's completely reinvigorated Black Velvet.

That was a relatively mature brand that historically we would not have slated for a lot of growth.

The Canadian Whiskey category was kind of lackluster, flattish to down-ish in that particular price point.

But with the introduction of our flavors, the Toasted Caramel and the introduction of the Cinnamon Rush, we're seeing very, very strong growth in that category, as well.

So a lot of opportunity on the organic side.

And we will take advantage of acquisition opportunities as they come along in all three categories, but we're not going to break our financial discipline and overpay just to make deals, especially in the context of how much opportunity exists on the organic side.

That's great.

So Cinnamon Hot SVEDKA, sounds like that's next on the list.

You should try it, Mark.

I'm telling you, it surprised me.

Now you're getting all of these flavors confused.

We're not doing coconut beer and we're not doing cinnamon SVEDKA.

(Laughter) And cinnamon whiskey.

You guys must be mixing your own cocktails.

-- alternatives.

So we're not going to see a V8 SVEDKA any time soon.

That's good.

You never know.

All right.

Thank you, guys.

Appreciate it.

Your next question comes from Robert Ottenstein of ISI.

A couple of questions on what is obviously a new and important beer business for you.

You've done a great job, obviously, commercially in what's been a marketing business, for the most part, so far.

And now you've got a huge plant, you've got supply chains.

Is there a plan to bring in any -- a CFO, if you will, a CEO, if you will, for the beer business, any new management there to help put everything together, and who will be responsible for the returns?

So we've got a very strong team of people that we're acquiring with the Piedras Negras Brewery, who are very successfully operating the brewery at the current time.

We don't expect any change in employment with respect to the team that's operating that brewery.

Obviously, we've got a very strong Crown team that's been responsible for the sales and marketing of that portfolio for almost 20 years, and has built that business into what it is today.

And in general, in the company, we have a very strong supply chain organization that operates more than 36 wineries and distilleries around the entire world, and thousands and thousands of employees, of which many of them came out of the brewing industry, as well as spirits and wine.

We are assembling a team of people that will be comprised of existing Crown personnel, existing Constellation production personnel, as well as some new personnel that will also be involved in the oversight of the expansion of the Piedras Negras Brewery, as well as operations in general.

But that said, I can't overemphasize the fact that we are acquiring a very, very strong team of people that are currently very successfully operating that brewery.

And by the way, not only are they very currently very successfully operating the brewery, but this is the team of the people who built the brewery.

Besides, it's a brand-new brewery.

It was only commissioned, and has only been operating for a couple of years.

And so we have all of the resources that have gone into building this, and we negotiated transition services arrangements with ABI to insure that we would have their expertise going forward over the next three years, as we integrate the brewery into our production operations, as well.

Okay.

But who specifically will be responsible and held accountable for now the total earnings profit of the beer business?

Yes.

Well, number one, I'm specifically accountable and responsible for the earnings of the beer, wine, and spirits business.

And then underneath me, of course, we do have very strong team of people who are responsible for the overall business.

But Bill Hackett is the President of the beer business, and he is the person who is primarily responsible for delivering the beer results.

But he will be working very closely as well with the Crown supply chain side of the business that reports to him, as well as the overall Constellation supply chain side of the business, which will be responsible, as I said, for oversight of the brewery and expansion of the brewery.

So Bill Hackett is the person responsible for beer profit.

Okay.

Great.

Congratulations, Bill.

Thank you.

Second, if you go through some of your SEC filings this week, there's some discussion by way of continuing government oversight to get to the 20 million hectoliters over the next three years.

Is there any other government oversight expected here in terms of on the commercial side, in terms of minimum amounts of marketing or advertising, or anything along those lines after everything is done, of further government oversight?

Yes.

The answer to that is no.

The government oversight is focused on the build out of the Piedras Negras Brewery over the next three years, and insuring that the milestones that we've set forth are met and the expansion is completed, so that the production aspect of our beer business is entirely independent at the end of the three-year period.

That's the sole focus of the DOJ, or government, oversight.

The commercial side of the business is completely under our control, period.

Terrific.

And then just one last question.

I think we all appreciate and look forward to looking at the kind of efficiencies that you're going to get at Piedras Negroes.

And I've heard wonderful things about that plant, and obviously you've got some potential to drive margins there.

How should we think of, if any, is there going to be any incremental costs in terms of logistics supplying the United States out of one market, as opposed to what's today, I believe, three different plants that would have different geographic locations and different costs, just in terms of getting the product to market?

No, it's the opposite.

There will be lower logistics costs in supplying from the Piedras Negras Brewery, which is only 13 miles south of the Texas border, and therefore, closer to the US market than any other plant or brewery that was previously supplying the US.

Terrific.

That's great news.

Thank you very much, and congratulations.

Thank you.

Your next question comes from the line of John Faucher of JPMorgan.

Yes.

Hello.

Thanks.

Just wanted to ask two questions.

First off, can you give us an idea in terms of, if we look at the $310 million that you talked about in February versus the $370 million now, that's obviously a pretty big increase.

Do you have some sort of clue in terms of what came in better from that regard, and how we should think about that from a comparison issue as you cycle against that?

And then from a currency standpoint, you talk about the impact of FX.

As we look at you guys going into Mexico at this point, I'm assuming this is just basically a straight translation of your peso-based costs.

And can you tell us what percentage of your costs, as you produce at Piedras Negras, are going to be in pesos versus dollars?

Thanks.

Yes.

So I would encourage everybody to forget about the $310 million.

And the $310 million was just an estimate at the time.

So the number we feel that will be as $370 million, it could actually be a slightly different number when the audit finally figures out.

And remember, all that number represents is the translated peso profits from calendar '12 of the manufacturing of beer to be sold to Crown.

So that is a base.

And I tried to give some guidance as to how we think that will pan out in '14.

Regarding the foreign exchange, actually, the beer industry, the majority of input costs are US dollar based, things like glass, aluminum, even hops and barley, and things like that.

So really the big foreign exchange exposure is the labor in the breweries, is the big, I'd say, transactional exposure.

Because of course, you're paying the employees in pesos and you ultimately sell the product in dollars.

Of course, there's a reasonable amount of depreciation at the brewery, which is also peso denominated, but that's translation versus transaction, because there's really no cash involved.

So as you get down -- and the other thing I'll say is, so Day 1, when we're buying say 30%, 40% of our volume from InBev, as we buy those finished products from them, that is a dollar denominated transaction.

We will pay them in dollars.

So we have no foreign exchange exposure.

As we move towards producing at the Piedras Negras Brewery, our foreign exchange exposure will increase.

Because we'll be hiring more labor there, and that will be peso denominated.

So over time, that will increase.

But in the grand scheme of things, the foreign exchange exposure for our beer business is not, percentage-wise, isn't going to be that large.

Now the COGS number is a big number, right?

It's $1.5 billion to $2 billion, depending on how much volume you say it is.

But there's probably only about 25% to 35% of that is peso denominated.

Okay.

Your next question comes from the line of Bryan Spillane of Bank of America.

Hello.

This is actually Mariya Golub.

A couple of questions on my end.

In terms of your free cash flow outlook for $475 million to $575 million, what are your working cap assumptions for 2014?

And does it factor in a more normalized level of bulk wine purchases versus last year?

Yes.

Our working capital assumptions for '14 aren't dramatically different from '13.

It is a higher use of working capital, simply because the business is growing.

I'd say our metrics are similar.

We're assuming a harvest in, I'll say fiscal '14, to be similar to the harvest in fiscal '13, and we expect cost of grapes to be, again, up a little bit, cost per ton.

But I would say that working capital isn't a huge driver in the year over year delta of free cash flow.

Of course, the beer transaction is the big driver, and one-time costs and all that kind of stuff.

Got it.

And then how should we think about the post closing purchase price adjustment and how that flows through to 2015?

Will there be a step up in interest expense then, relative to 2014?

Well, in 2015, we expect to fund it out of existing cash for the revolver.

So if it were to occur, of course, our interest expense will be lower.

But we have that in our whole financing scheme.

We will not have to go to the market to borrow more money.

We will be able to do that from the facilities that we are raising right at this moment.

Got it.

And then just final one for me, just on Crown Imports.

Is there anything else that's -- besides pricing, that's driving the positive delta between sales NOI growth for 2014?

Because if I take a look at that business over the past several years, the OI in Crown Imports has actually lagged sales.

Yes.

I'd say it's the pricing we took in October of calendar '12 is a piece, and some efficiencies throughout the rest of the business will be another driver.

But the pricing was certainly a big piece.

Okay.

Great.

Thank you guys.

That does conclude the Q&A portion of today's call.

I will now turn the floor over to Rob Sands for closing remarks.

Well, thank you all for joining our call today.

As I mentioned, I am very excited about the prospect of finalizing the beer transaction and integrating 100% of the Crown business and the Piedras Negras Brewery with Constellation.

This deal is a game changer for us, significantly enhancing our financial profile and providing new avenues for growth.

I am also excited about our plans for fiscal 2014.

As we enter the new year, we have great marketplace momentum across our beer, wine, and spirits businesses, and we are poised for solid execution of our goals for the year.

Now as I mentioned, we will be hosting an investor conference in New York City on June 5, and I look forward to seeing many of you there at that time.

So, thanks again for your participation in our conference call.

Thank you.

That does conclude today's Constellation Brands fourth quarter 2013 earnings conference call.

You may now disconnect.