Constellation Brands Inc (STZ) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Constellation Brands fourth quarter and full year 2015 earnings conference call.

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

(Operator Instructions)

Thank you.

I'll now turn the call over to Patty Yahn-Urlaub, Vice President of Investor Relations.

Please go ahead.

Thank you, Paula.

Good morning, everyone, and welcome to Constellation's fourth quarter and FY15 year end 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 releases which have 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.

While those statements represent our best estimates and expectations, actual results could differ materially from our estimates and expectations.

For a detailed list of risk factors that may impact the Company's estimates, please refer to the news releases and Constellation's SEC filings.

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

Thanks, Patty, and good morning, everyone.

Before I begin the review of our accomplishments for the year and our plans for FY16, I would like to focus your attention on the press release issued earlier today reporting that our Board of Directors has approved the initiation of a quarterly Common Stock cash dividend for the first time in the history of our Company.

This milestone is of particular significance because it reflects the confidence that we and our Board of Directors have in our ability to execute against growth opportunities, invest in our businesses, and generate free cash flow that could be returned to you, our shareholders.

It is the collective strength of our businesses that has enabled this action and demonstrated by the impressive results achieved the Company in FY15.

Since the acquisition of our beer business almost two years ago, we have had no shortage of milestones.

We emerged as the number one multi-category player in alcoholic beverages and we are committing significant investment to our world class brewery in Mexico.

and our marquee beer brands continue to achieve outstanding growth and garner accolades for their quality.

For example, six of our wine and spirits brands and three of our beer brands won Impact's Hot Brands Award for 2014 as announced in early March.

Collectively, these accomplishments have driven the appreciation of our stock, which remains one of the best performing stocks in the S&P 500 consumer staples index.

So now let's talk about some of our key achievements for FY15 and the great initiatives we have underway as we charge ahead to an exciting FY16.

This past summer, we purchased Casa Noble tequila, an award winning, hand crafted super premium tequila, which has been a great addition to our portfolio.

This fast growing tequila brand naturally complements our Mexican beer brands and fits well into our existing wine and spirits distribution infrastructure.

More recently, we hired our new Chief Growth Officer, Bill Newlands, who is responsible for providing greater focus and coordination and the long-term growth opportunities across our beer and wine and spirits businesses.

In addition, Bill is accountable for accelerating innovation and new product development initiatives and leveraging strategic insights and customer analytics, while identifying synergies across total beverage alcohol within our national accounts organizations.

Bill reports directly to me and I am happy that he has joined our executive management team.

One of our major accomplishments for the year was the implementation of a multi-faceted long-term glass strategy for our beer business under favorable terms with key industry players, which included the formation of a 50/50 joint venture with Owens-Illinois, the world's leading glass container producer to own, operate, and expand the Nava glass plant.

The acquisition by the joint venture of ABI's state-of-the-art glass plant located adjacent to our brewery in Mexico and the execution of a glass supply agreement with Mexican glass manufacturer, Vitro, the benefits of which we will begin to fully realize once their Monterey glass plant has been completed.

We believe this comprehensive sourcing strategy provides an optimal solution for this essential component of our beer production process, while securing future supply of materials and improved margins on finished products.

Now the commercial side of our business continued to achieve stellar growth in FY15, outperforming the US beer industry, key competitors, and all other imports for the fifth consecutive year with growth achieved by every brand in our Mexican beer portfolio.

As a result, Constellation Brands beer business was the number one contributor to growth in the US beer category in FY15 while delivering market share growth across all channels in 48 out of 50 states.

More importantly, our beer business growth has accelerated every year since 2010 and depletion trends accelerating to greater than 8% in FY15.

I'd like to take a minute to share some of this past year's amazing accomplishments for our iconic beer brands and highlight the key initiatives we plan to execute during FY16 in order to maintain this excellent momentum for the business.

Let's begin with the clear heavyweights in our portfolio, Corona Extra and Modelo Especial.

These brands are not only the biggest, but have contributed the greatest incremental volume growth.

Our flagship, Corona Extra brand, is the best selling imported beer in the United States.

This brand sold more than 105 million cases in FY15 and posted depletion growth of more than 3% for the year.

Corona Extra was the only Top 5 beer brand in the US to achieve growth last year, with volume trends for this brand continuing to maintain their solid momentum.

In FY16, we expect to capitalize on the growth of Corona Extra through increased national TV advertising, sports media, boxing sponsorships, and by leveraging our acquisition of Casa Noble.

According to GuestMetrics, during calendar 2014, Corona Extra continued to be the number one selling imported beer in the on-premise channel.

To further support Corona Extra, we plan to increase our investment to expand activations in on-premise accounts throughout the year.

Most importantly, FY16 will represent the year of the can for Corona Extra.

We see great opportunity for growth with cans, as this format currently represents less than 3% of total sales for Corona Extra.

Last year, we represented another record setting year for Modelo Especial with depletion growth of more than 16%.

The Modelo Especial brand family contributed more dollar growth to the total beverage alcohol category than any other brand family in beer, wine, or spirits in FY15.

Modelo Especial has become the number two imported beer in the US with more than 15% share of the imported beer category, which is nearly double the share for this brand just five years ago.

Our strategic initiatives in FY16 for Modelo Especial include: increased media and general market advertising, continued execution with Modelo Especial Chelada, on-premise activation, retail sponsorships and promotion, and Hispanic marketing and advertising and media investments.

As you are aware, the bench strength of our beer portfolio goes deeper than our two biggest brands.

Part of what makes our collection of brands so powerful is the long-term potential of our smaller brands.

So let me provide some examples.

Corona Light.

Corona Light posted record sales in FY15 hitting the 14.5-million-case mark and growing depletions almost 4% versus the prior year.

We have had good success expanding the distribution of Corona Light Draft and we plan to continue building on this success in FY16 by expanding our national draft footprint with recent launches in eight additional markets.

We are also relaunching Corona Light cans supported with redesigned secondary packaging which will be featured in our new advertising campaign highlighting Corona Light as the light cerveza.

Finally, we plan on continuing our partnership with Kenny Chesney, which has been a great asset for this brand.

Victoria has become the third best selling beer in Mexico with a 15% market share of that market.

In FY15, US depletions for Victoria increased 60%, driven primarily by the Mexican Hispanic consumer and expanded distribution for this brand into 19 new states.

In FY16, we're excited to introduce Victoria cans into the US market for the first time.

Our support strategy for Victoria will focus on continuing to drive distribution and generate awareness for the new can format during key promotional periods.

Overall, I am excited about the organic growth prospects for our beer business in FY16.

As you can see we have tremendous opportunity to grow the business organically through enhanced distribution and execution opportunities across the portfolio.

As a result, for our beer business, in FY16, we are targeting high-single-digit sales growth which exceeds US beer industry and import trend estimates and is expected to drive operating income growth in the 10% to 12% range.

From a brewery and operational perspective in FY15, we achieved our key brewery performance goals related to utilization, quality, and cost.

All areas of the brewery expansion are well underway with the project expansion on schedule from both a budget and timing of completion perspective.

The packaging area and high density warehouses are progressing on schedule, as well as utilities and wastewater projects.

Fabrication of beer tanks has been completed, and we recently added capacity to our can line in order to reduce our dependence on ABI for cans.

The new joint venture management team has been established at the glass plant, and has begun work on the next glass furnace to be built on site at this newly acquired facility.

The team has done an amazing job during brewery construction to minimize the impact on commercial business execution in the marketplace.

As we begin FY16, we'll be intensely focused on the continued expansion of the brewery with the first incremental 10 million hectoliters of capacity expected to become fully operational just more than a year from now in the summer of calendar 2016.

Overall, I am extremely pleased with the outstanding commercial and operational performance of the beer business.

This has been driven by a combination of robust consumer demand, strong sales execution, excellent support from our wholesalers, creative new marketing and advertising programs, as well as the outstanding efforts of our commercial team and our brewery team in Mexico.

And now I'd like to focus on the operational results for our wine and spirits business.

During FY15, we achieved EBIT growth of 6% for our wine and spirits business and increased operating profit margin by 130 basis points.

Our spirits portfolio achieved better than expected results, as well as our Canadian business, which exceeded its financial goals for the year while growing share across all strategic product categories.

Sales growth in the US benefited from positive mix trend and some favorable pricing as we executed price increases in FY15 for select wine products in the value and luxury segments of the US market while also growing distribution at key US retailers.

Wine and spirits EBIT growth was primarily driven by positive mix and COGS benefits including reduced grape costs, as well as positive impacts from ongoing blend optimization initiatives and productivity improvements.

In addition, EBIT benefited from distributor performance payments as our exclusive distributor contracts included an incentive structure that adjusts based on achievement of specific executional performance metrics for the year.

In terms of our overall US depletion performance for FY15, our distributor sales to retail for Constellation's total US wine and spirits business across all channels remained relatively flat.

Now this compares to US wine and spirits industry depletion growth of approximately 1% across all channels as reported by the Beverage Information Group for calendar 2014.

As expected, our overall US wine dollar market share eroded slightly in FY15 driven by the super premium price segment, which remains highly competitive and currently generates a good deal of the US wine category growth.

However, we have gained share in the important premium and ultra premium price segments of the market and are working diligently to ensure our portfolio remains relevant and top of mind for our consumers in all key price segments.

And we continue to experience solid depletion growth for a number of our fast growing wine brands including Kim Crawford, Mark West, Ruffino, Simi, Black Box, Nobilo, and The Dreaming Tree.

The strength of our portfolio begins with quality products, and I am very proud to say that we received over 300 wine competition medals the last year and 52 of our wines received 90-plus-point ratings.

This includes a 93-point score for Robert Mondavi Winery 2011 To Kalon vineyard Cabernet Sauvignon Reserve in the Wine Enthusiast, and a 90-plus rating for our Ruffino Riserva Ducale Oro.

And our list of achievements continues.

Five of our brands made IRI's top 20 wine brands in 2014 including Woodbridge by Robert Mondavi.

15 of our brands were winners of the Beverage Information Group 2015 Growth Brand award including two spirits and 13 wine brands.

And many of our other wine brands continue to generate great media attention from a variety of news and lifestyle publications including the Wall Street Journal, Food and Wine magazine, and Forbes.com to name a few.

Earlier, I mentioned that six of our wine and spirits brands made Impact's Hot Brands list.

It's important to note that this list includes well established brands such as Kim Crawford, which has won eight years in a row, and Black Box, which is celebrating its 10th consecutive win.

It also includes The Dreaming Tree for the second year in a row, which is a testament to the level of success of our innovative efforts -- that our innovative efforts can achieve.

We experienced excellent sales growth of 8% for our spirits portfolio in FY15 driven by Paul Masson brandy and SVEDKA vodka.

For recent data received from the Beverage Information Group for calendar 2014, SVEDKA is the only vodka amongst the top five largest volume vodka brands that achieved growth for the year.

In a category that is evolving as consumer preferences change, SVEDKA continues to win in the marketplace.

SVEDKA's innovative flavors like Strawberry Lemonade and Mango Pineapple are driving current success, and we look forward to seeing results from our recent launch of our Grapefruit Jalapeno flavor.

In addition, the success of Paul Masson Peach brandy has exceeded our own expectations, and we are currently expanding the product into additional formats and developing other new and exciting flavors for our brandy, as we have done with our vodka and our whiskey brands.

Overall, we gained IRI dollar share of imported vodka and Canadian whiskey categories for FY15.

Our Casa Noble tequila brand has been fully integrated into our portfolio and we see significant opportunities to increase awareness and trial of this brand in the coming months.

As we approach the Cinco De Mayo holiday, you will begin to see cross-promotional activities between Casa Noble and Corona Extra which will help capture more merchandising and floor space at retail and in the on-premise channels.

From a strategic perspective, in 2016 our goal is to grow profit for the wine and spirits business while also growing revenue which is reflected in our FY16 wine and spirits guidance to achieve low- to mid-single-digit sales growth and EBIT growth for the year.

We also expect to maintain the margin improvement we achieved in 2015, and we are committed to executing the following strategies in an effort to make this goal a reality.

We will continue to focus our marketing efforts on a subset of focus brands in order to drive key brands that have scale, higher margin, and the greatest potential.

These brands include Woodbridge, Kim Crawford and Black Box just to name a few.

We remain committed to margin accretive innovation and new product development and have launched an enterprise-wide product development process review to improve our results in this area and increase the success rate of our new product pipeline.

We have a team dedicated to this process to make sure our innovation is thoughtful and measured and positions us to ultimately win in this area.

We believe we have a winner with our new Tom Gore wine brand in the coming year.

We plan to improve sales execution and increase points of distribution by delivering more effective feature and display activity at retail with added accountability and visibility for both Constellation and our distributors.

And speaking of our distributors, our renegotiated exclusive US distributor arrangements are in place and will provide increased resources and improved performance metrics while enhancing wholesaler and retailer execution.

For the second consecutive year, we plan to execute price increases for selected products in the value and luxury segments of the US wine market.

And finally, we plan to optimize our [products] through continued global blend management initiatives, productivity improvements, and lower grape costs.

Overall, we are committing people, technology, and resources to our work with our wholesalers and retailers to execute growth for our wine and spirits business.

In closing, in FY15 we delivered industry leading market results for our beer business while exceeding our goals across the board for volumes, depletions, sales, and net income.

Our wine and spirits business delivered improved margins and earnings growth with the Canadian business, and our spirits portfolio achieving better than expected results.

Overall, we remain committed to challenging ourselves in FY16 in order to optimize the business opportunities that lie ahead.

Calendar 2015 marks the 70th anniversary of our business which has become Constellation Brands.

We are excited to build on the success achieved in FY15 as we head into the new year with high expectations to create the next wave of growth for our Company.

With that, I would now like to turn the call over to Bob for a financial discussion of our fourth quarter and year-end results.

Thanks, Rob.

Good morning, everyone.

FY15 was a very exciting and strong year where we continued to strengthen our financial profile, as we generated $6 billion of sales and 5% of organic sales growth, expanded our operating margins in both segments for consolidated comparable basis operating margin increase of more than 200 basis points, and established some all-time highs with consolidated EBIT reaching $1.6 billion, up nearly 30%, comparable basis diluted EPS up more than 35% to $4.44, and operating cash flow up more than 30% while crossing the $1 billion mark.

We also reduced our overall average interest rate by securing attractive long-term financing and we advanced our long-term strategy related to beer glass sourcing, and made significant progress on our brewery expansion activities.

We anticipate FY16 to be another productive year, as we expect to generate healthy net sales, EBIT and EPS growth while continuing to invest in our world class brewery as part of our efforts to become fully independent from a beer production standpoint.

In addition, given the financial strength of each of our business segments, and the resultant capital allocation flexibility, we're very pleased to be returning cash to shareholders through the initiation of a quarterly dividend.

Given those highlights, let's look at FY15 performance in more detail, where my comments will generally focus on comparable basis financial results.

As you can see from our earnings news release, consolidated net sales for the year were up 24%, which included $941 million of incremental net sales due to the timing of the beer business acquisition.

Consolidated organic net sales on a constant currency basis grew 5%.

We continue to see robust marketplace momentum for our beer business with depletion growth of 8%.

Beer shipment volume growth of 10% came in ahead of depletion growth as distributors increased their inventory position during the second half of the year in an effort to be more aligned with historical levels and to be better positioned to meet consumer demand heading into the key summer selling season.

Pricing benefits helped beer net sales growth reach 12%.

Wine and spirits net sales on a constant currency basis increased 1%.

This reflects positive mix combined with a distributor make-whole payment associated with the planned distributor destocking during the first quarter, and distributor performance payments recognized during the fourth quarter, partially offset by lower volume, lower non-branded net sales, and higher promotional spend.

For the year, consolidated gross profit increased $630 million.

The increase primarily reflects $443 million of incremental benefit from consolidating the beer business for an additional 14 weeks in FY15 as a result of the beer business acquisition, as well as volume growth and favorable pricing for the base beer business, and favorable mix and COGS for wine and spirits.

Our consolidated gross margin increased 260 basis points to 43.8% for the year primarily due to the benefits of consolidating the higher margin beer business and beer pricing.

Favorable mix and COGS for the wine and spirits business, as well as distributor performance and destocking payments also contributed to the consolidated gross margin improvement.

I would like to note that we have included gross profit and gross margin data in our segment disclosures in our press release and in our segment history file posted on our website.

SG&A for the year increased $216 million.

The incremental SG&A associated with consolidating the beer business was $134 million.

The remainder of the increase was primarily due to higher marketing and SG&A for the base beer business.

Due to the factors just mentioned, consolidated operating income increased $415 million and consolidated operating margin improved 230 basis points.

Equity earnings decreased $66 million primarily due to the timing of the beer business acquisition.

Interest expense for the year was $338 million, up 4% versus last year.

The increase was primarily due to higher average borrowings partially offset by lower average interest rates.

That provides a good spot to discuss our debt position.

At the end of February, our total debt was $7.3 billion.

When factoring in cash on hand, our net debt totaled $7.2 billion, an increase of $281 million since the end of FY14.

As a reminder, during Q3, we issued $800 million of Senior Notes, consisting of $400 million of 3.875% notes due in 2019, and $400 million of 4 3/4% notes due 2024.

Part of the proceeds from the notes issuance was used to redeem $500 million of 8.375% Senior Notes.

The remaining proceeds helped fund the acquisition of the glass plant and related infrastructure.

Our effective tax rate for the year came in at 29.5% and compares to a 31.2% rate last year.

The decrease was primarily driven by the benefit of foreign tax credits during the fourth quarter.

Now let's briefly discuss Q4 results.

Comparable basis diluted EPS for the quarter came in at $1.03, up 27%.

The tax benefit I just mentioned was a big driver of our EPS growth as our Q4 tax rate came in at 23.2% versus a 34.8% rate in Q4 last year.

Beer business results for the quarter finished strong.

Depletions for the quarter were up 9%.

Volume and net sales were both up 11%.

While we continued to see a pricing benefit during the quarter, it was essentially offset by certain adjustments to net sales related to the beer recall and other items recorded during the fourth quarter.

Operating income was up 9%.

Wine and spirits net sales on a constant currency basis were up 2% for the quarter.

This reflects the benefit of favorable mix and distributor performance payments, partially offset by lower volume.

Wine and spirits operating income decreased 2% as higher marketing and SG&A costs unfavorably impacted quarterly results.

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

For FY15, we generated $362 million of free cash flow compared to $603 million last year.

Operating cash flow for FY15 totaled $1.1 billion versus $826 million for the prior year.

The increase was primarily due to the net benefits generated by the beer business.

CapEx for FY15 totaled $719 million compared to $224 million last year.

CapEx for the beer segment totaled about $600 million and is primarily related to the brewery expansion.

For FY16, we expect free cash flow to be in the range of $100 million to $200 million.

Our free cash flow projection reflects operating cash flow of $1.15 billion to $1.35 billion, and capital spending of $1.05 billion to $1.15 billion for FY16.

Our CapEx projection includes $950 million to $1.05 billion for the beer segment.

Based on the mid-point of our guidance, we're targeting a 15% increase in operating cash for FY16.

This benefit is being more than offset by the increase in our CapEx spending related to the brewery and glass plant expansions.

This activity is timing related as these projects are progressing as planned from an overall cost and timing of completion perspective.

As you'll see in our press release, we've provided an updated table summarizing the spending incurred and estimated future spending for these beer business projects.

Now let's move to our full year FY16 P&L outlook.

We're forecasting comparable basis diluted EPS to be in the range of $4.70 to $4.90 a share.

Our comparable basis guidance excludes unusual items which are detailed in the release.

The beer business is targeting mid-single-digit volume growth, high-single-digit net sales growth, and 10% to 12% operating income growth.

Given the FY15 beer shipments ran ahead of depletions.

As distributors brought inventories back to more historical levels, we expect our FY16 depletion growth to be above shipment growth, and to be in the high-single-digit range, a result that would continue to far outpace the import category and the total beer industry.

Our guidance implies operating margin expansion for our beer business, as we're projecting operating margins to be in the 33% range for FY16.

This is expected to be driven primarily by gross margin improvement as we plan to continue to make investments in marketing and our SG&A infrastructure at a higher rate than our level of net sales growth.

For the wine and spirits business, we expect net sales and operating income growth to be in the low- to mid-single-digit range.

Volume growth is expected to be in the low-single-digit range and we expect to generate positive mix, again, take some pricing, and generate additional COGS benefits.

Interest expense is expected to be in the $325 million to $335 million range.

The tax rate is expected to approximate 30.5%.

Our guidance also factors in the initiation of a quarterly dividend.

As Rob noted, this represents a significant milestone in our history.

Returning cash to shareholders demonstrates the confidence we have in the overall growth prospects and the strong free cash flow generation capabilities for both our beer and wine and spirits businesses.

We're initially targeting a dividend payout ratio of 25% to 30% of our comparable basis net income, and for FY16 we're anticipating approximately $240 million in dividend payments.

We ended FY15 with a net debt to comparable basis EBITDA leverage ratio of 4.1 times.

Even with our projected higher level of CapEx spend and the initiation of a dividend, our strong projected earnings and operating cash flow growth has us positioned to meet our targeted three to four times targeted leverage range during FY16.

Operating within our targeted leverage range, combined with our strong free cash flow generation capabilities, provides us significant financial flexibility.

Going forward, as our beer CapEx spend normalizes, this provides us the ability to evaluate opportunities to increase our dividend and resume our share buyback program.

In closing, I'd say that as we exit an eventful and successful 2015, the future looks equally bright.

We are a leader in growing and profitable consumer categories that are critically important to our distributors and our retailers.

At a consolidated level, a strong US dollar, and an improving US economy are positives to Constellation, and we have minimal exposure to emerging markets.

In wine and spirits, we continue to expect mid-single-digit sales growth for the industry.

In FY15, we increased our operating profit margin 130 basis points and finished the year with a margin of nearly 24%.

We expect to maintain that margin in FY16.

We have some work to do in order to reinvigorate our top line, but we have put in a lot of effort against this area as reflected in our guidance.

Longer term we anticipate continued strong category growth and we expect to at least maintain market share.

In the beer segment, we continue to deliver industry leading sales growth and we continue to make progress towards our mid-30% operating profit margin goal.

We're on schedule with our aggressive brewery and glass plant build out which requires us to reinvest most of our consolidated operating cash flow in 2016.

Our beer business generates very strong margins and very high operating returns on invested capital, so the payback on this investment should be quite fast.

In beer, we feel our strong brand equity, marketplace and distributor network momentum, opportunities to increase portfolio distribution and grow sales in the can and draft formats, and favorable consumer demographics provide us with the very positive growth outlook.

In addition to these positive business factors, we believe our strong cash generation capabilities and our ability to quickly delever should provide us ample future opportunity to increase returns to shareholders through dividend growth and share buybacks.

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

(Operator Instructions) Your first question comes from the line of Nik Modi of RBC Capital Markets.

Yes, thanks, good morning, everyone.

A couple quick questions from me.

Bob, can you just clarify, you talked about other issues that affected the price fix number in beer.

I just was hoping you could provide a little bit more clarity on exactly what that was?

And then the second question, on the capital allocation, when you talk about taking up the dividend is this more about growing in line with earnings or do you ultimately see a payout ratio getting towards the higher end of your peer group, which is, I think, around 45% or so?

And then the third question, sorry for the multiple questions, is on wine, what specific initiatives should we be looking at or for to really see the wine volume momentum turn from what we've been seeing last couple of quarters?

Sure, Nik.

So on the first question, it was a little bit garbled, but I think you're asking about Q4 pricing and Q4 beer margins.

Essentially what happened, it was really just a timing thing because the big piece was because of the Corona recall and we got fully reimbursed from InBev for that activity.

That just caused some anomalies as to how we account for that and the difference between what happens in sales and what happens in volumes.

And then there was another reclass that happened in the fourth quarter.

So what I would do is I would just look at the full year numbers which would be more reflective of the real price volume relationship.

For the second question on the dividend, look, we're just starting out.

I think we're very happy for the first time in the Company's history to be instituting a dividend.

And I think we wanted to start out probably on the lower level of where peers are, and part of that is the fact that we're still right around the four times EBITDA leverage ratio.

We expect that to come down very fast, but we thought we would start out a little slow.

I'd say that we are focused on 25% to 30% payout ratio, and we feel the combination of pretty strong medium- to longer-term EPS growth would allow us to grow the dividend in line with EPS, and in future years we may actually assess where we want to be in that 25% to 30% payout range.

Right now we're at the lower end, but certainly we have room to go to the higher end of that range.

The third question, which is more around wine volumes, I'll let Rob answer.

Hi, Nik.

Wine volumes, basically, Nik, we've got a lot of programs that we put in place for our FY16 to drive, I'll say, better wine volume growth, and in particular, we've got some increased marketing against key brands.

We have been increasing marketing.

We've been doing a lot of research on exactly what kind of marketing will get us the best results, and we're implementing some new programs that we're very optimistic will, in fact, drive more sales growth in FY16 against key brands, and, thus, the whole portfolio versus 2015.

We've got a lot of new programs around activation in the marketplace and sales execution to drive points of distribution, as well as increased merchandising, display and other activity at retail around our brands.

So a lot of programs that we've put in place as we moved into this year and I would say we're pretty optimistic that we'll meet our top line goals.

Very helpful, guys, thank you.

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

Hi, Bryan.

Good morning, everyone.

Hi.

So just I guess two related questions just to clarify on the guidance for FY16.

One is just if you look at the margin guidance in beer, Bob, you've got, you're beginning to incur some of the operating expenses and expensing the expenses related to the brewery expansion.

So you've got the can line in, you'll have more of the capacity beginning to be tested in such.

So could you just [dimensionalize] for us a little bit how much expense there is, how it's affecting the margins and maybe how long we'll have that dynamic where there's some expenses related to the start up that really don't have revenues attached to them?

Yes, sure.

So good question, Bryan.

So we experienced a little bit of this in the fourth quarter.

As you bring these big lines on, a bunch of things happen.

First they start to depreciate.

These are brand new lines, so the depreciation expense is not insignificant.

Secondly, as you bring them on and you're testing them, right off the bat -- and this lasts for quite a while -- you are not getting very good yields, nor are you getting very good asset utilization.

So that kind of increases your expenses, right, so it takes awhile when these big lines are coming on to get them operating at full optimization.

And as we look at beer margins in 2016 there's actually, there's some big movers, right.

We expect to save a reasonable amount of money because of glass, okay, because we'll be sourcing more glass from our joint venture location which has no freight and has the lowest cost of produced glass of all our suppliers.

That's a positive.

Another reason we think positive is foreign exchange.

But offsetting that is an increase in depreciation, not insignificant, and some increased labor costs.

As you have these start-up expenses and you're bringing on labor ahead of the time that you're actually getting a lot of useable product from those new production lines.

So they're kind of big offsetting things.

That being said, we're pretty happy that we finished this year's operating profit margin pretty much exactly where we said we would, right around 32% in beer, and we're anticipating a 100-basis-point improvement even though we've got a lot of these new big production lines coming on stream.

So we're pretty happy with that guidance.

Okay, that's helpful, and just if I could just sneak in, the guidance range at $4.70 to $4.90, as I was just quickly plugging numbers in I was trying to figure out how you get to the high end of the range because it seems like you can get to the middle pretty easily given the revenue and margin guidance you've given.

So is the high end of the range basically, really going to be more predicated on how well sales do relative to your guidance, meaning be at the high end or above, or is the high end of that guidance range more tied to some of the margin expansion?

I think it's probably, look, we're a consumer product Company, so the way we would like to get it is through sales that are higher than we anticipate, and generally that's what drives the bus on a consumer product P&L.

So I'd probably say the higher end of the guidance would be coming through the higher end of the guidance on our sales guidance.

Okay, great.

Thank you.

Your next question comes from Dara Mohsenian of Morgan Stanley.

Hi, this is Bob Doctor standing in for Dara.

I just have two questions.

First, on the long-term volume expectations for the beer business, you recently communicated a goal to distributors of roughly doubling the business by 2024 which implies a healthy 6% 10-year CAGR.

I was just curious, is this a real target investors should be focused on, or more of a pie in the sky number you threw out to distributors?

And then, second, if you could just provide some updated color on the US beer pricing environment which has decelerated a bit?

And then, specific to your pricing strategy, is the plan really more geared towards relative pricing gaps or has strong volume growth really emboldened you guys to take more of an absolute approach?

Thanks.

Yes, Bob, on the first question, I'll answer a bit of it and then let Rob answer it.

He knows a lot more about the industry than I do.

When we provided our updated capital spending guidance earlier this year, we did provide some medium-term volume guidance, which actually was driving the need to spend to expand the brewery from 20 million to 25 million hectoliters.

I think at that time we said the medium-term volume guidance was mid-single-digits.

So I think your number was probably consistent on that.

That being said, next year's depletion guidance is more like 8%, so it's higher than that.

So that was medium term.

I think that brought us through FY17 and FY18.

For a longer-term industry discussion, I'll hand it over to Rob.

Yes, I think the answer to your question is it is definitely not pie in the sky.

I would say that doubling the business over the next 10 years is based on what we think is going to happen in the beer market, and in particular, how imports are going to continue to grow, and then how our portfolio is going to continue to grow.

Based on what we see or know is going to happen with the Hispanic demographic group and the growth of LDAs in that group, we think that doubling the business over the next 10 years is certainly a doable number.

I won't say that we got so detailed in our distributor meetings as to exactly how that's going to occur, id est, organically or otherwise.

But, of course, over the next 10 years we're going to have to have new products, new packaging, new SKUs, et cetera, to keep the growth of the portfolio as it is.

Plus, obviously, as Bob pointed out, we're starting out ahead of where we need to be CAGR-wise to achieve that.

So I think we feel pretty optimistic that is a very achievable goal and number.

And then, Bob, as far as the pricing comment, look, beer is a local business, so we look at pricing differently by geographic regions.

We have different competitive dynamics in the different regions and different competitors take different pricing actions in the different regions.

So we do pay attention to the momentum we have in those individual regions.

What is our key price gaps to our key competitors in those regions, and we kind of make decisions in those individual geographic regions, and then it kind of rolls up to the more macro number which you would see reflected in IRI or Nielsen.

Great, thanks, guys.

Your next question comes from Judy Hong of Goldman Sachs.

Thank you, good morning.

My first question is just a little bit more clarification on what happened in the fourth quarter on the wine business because you had a pretty big gap in terms of shipments, underperforming depletion?

And then you also called out the performance payments from the distributors, which I think helped your revenues or margins.

So can you just talk about some of the underlying trends, if you strip out -- just number one, just the gap between shipments and depletions, and then the distributor performance payments?

Yes, in the fourth quarter is where we make certain adjustments basically in our shipments to distributors to make sure that shipments do, in fact, equal depletions.

So there can be imbalances in the fourth quarter that are not necessarily reflective of the whole year.

So I think you really have to look at the whole year as opposed to quarter-to-quarter because there can be anomalies in the timing of shipments versus depletions.

We also had some interruption in the international business as a result of Russia and this and that, but basically when you look at the whole year this was pretty immaterial.

What was your second question, Judy?

The performance payments, sorry, to quantify the performance as you have called out?

Yes, so also in connection with our distributor agreements, and specifically in the fourth quarter of every year, this is where we sort of look at where our distributors have come in versus the goals that were agreed upon and set, and then there are payments made in the fourth quarter that can actually go either way based on our distributors' achievements of KPIs and key performance indicators.

And those KPIs are things like sales, mix, distribution, for example.

So in the fourth quarter they went our way last year and, thus, again, that causes, I'll say, sort of quarter-to-quarter anomalies.

I think fundamentally you have to look at the whole year.

Okay.

And then, Bob, I just wanted to follow-up on the capital allocation question, and this is really more 2017 type of questions, but as you think about CapEx, obviously, stepping down, your free cash flow stepping up pretty meaningfully, and the natural deleveraging effect that it has in your business given the EBITDA growth and your leverage targets, so how do you think about really levering up the balance sheet to either buy back stock at a more aggressive manner versus your free cash flow generation or even paying the dividend?

Yes, that's a good problem to have, as you know, and we are looking forward to FY17, and depending what's going on in the marketplace, my guess is we will probably increase the dividend at least with how comparable net income increases.

And as I said earlier, we have the opportunity to go higher in that 25% to 30% payout ratio range, and I would probably anticipate that we reinvigorate our stock buyback program.

We still have about $700 million authorized by the Board.

As you know, right before the beer deal and the previous 12 to18 months we had bought back about 20% of our outstanding shares, just under $20 a share.

So that's worked out pretty well for us.

But I think it will be a combination of those two, and I would presume that various tuck-in acquisitions in the beverage alcohol category might also come up.

But as you said, as you look at the numbers, the free cash flow generation, when we get past this real high tranche of capital spending, is really significant for our business.

So we have a lot of flexibility on how to reinvest that cash.

And I would presume that a reasonable amount of it would go back to shareholders.

Okay, thanks, and then if I can squeeze in one last question.

Bob, the glass sourcing in 2016, can you give us a little bit of clarification in terms of what portion of your volume will come from various arrangements?

So the JV, the Vitro, the O-I arrangement you have in Waco, so just rough breakdown of those relationships?

Yes, I'd rather not get real specific on that, but what I would reiterate is our least expensive source of glass is the facility that is right next to our brewery.

Right now it has one furnace that's operating.

We've begun building furnace number two, and it's planned to go up to four furnaces, and they kind of come in over the next four -- it's almost like one a year comes in, right?

So that volume will shift from other third party suppliers to that local supplier, and when it gets up to a total of four furnaces it will be capable of providing roughly half of our needs in glass.

So that's kind of how it's going to play out.

The good news is that we're happy that we have landed that joint venture and we're thrilled with our JV partner.

Owens-Illinois has already exhibited quite a bit of expertise in operating these glass facilities, and they tend to think very much like us, so there's no disagreements unlike some other joint ventures that we might recall.

And the other providers are also quite professional and quite good at what they do.

And the good news is that in the total glass industry, glass is not a growing industry.

We are growing our glass business, so we are a favored partner.

So I think it is a very good partnership between us and all our glass suppliers.

Great, okay, thank you.

Your next question comes from Tim Ramey of Pivotal Research Group.

Good morning, thanks.

Rob, as you think about your outlook on wine, how would that reconcile with your outlook on the overall wine industry, and where do you see the best growth, the pockets of growth within the overall wine segment and price points in 2016?

Tim, we think that the wine industry in general in 2016 is going to grow sort of low-single-digits in volume, couple hundred basis points above that in dollars.

So volume, 1% to 2%, dollars, maybe 3% to 4%, sort of consistently with what happened in 2015 depending on exactly what reports you're looking at you're sort of looking at 1% volume growth in 2015, and, again, a couple hundred basis points above that in dollars growth.

In terms of where we are going to see the growth, it's pretty much the same story as historically has been the case which, I think, there continues to be a very strong [premiumization] trend.

All the growth, and more in actuality, is occurring in the premium-plus category.

And probably the thing that's changing is that it continues to move, I would say, upstream, and it's sort of started with the sort of the bottom of the premium segment, $5 and above.

It moved up into what we call the super premium segment which is sort of the $8 to $10, meaning the growth, that's been very strong.

And now we're seeing very strong growth in segments above that, so ultra premium and luxury, really, I would say a lot.

You're going to see very strong growth in sort of that $13 to $20 range, you're probably going to see double-digit growth.

In terms of varietals, I think that you'll see decent lower levels of growth in the most key varietals, id est, chardonnay, cabernet sauvignon.

I think that pinot noir is going to continue to be a very stable and hot category in wine.

I think in white wine you're going to continue to see very strong growth in pinot grigio and, of course, New Zealand sauvignon blancs, I think, are going to continue to be a very hot category.

And then, I think another phenomena, or I won't quite call it a phenomena, but a bit of a change in trend is sparkling wines.

I think that sparkling wines have become very hot once again, or I shouldn't say once again but, again.

They haven't been that hot over the last -- I don't know -- 5, 6, 7, 10 years.

And you're seeing some of the more affordable categories in sparkling wine like Prosecco, and some of the domestic California sparklers become hot, and I'll say, more every day, people are turning to sparkling wine as an every day product.

What you don't see as particularly hot is champagne, id est, French champagne.

But I think that it's priced itself out of the market largely, and the consumer has turned to, I'll say, more reasonably priced and easier to drink alternatives than champagne.

So sweet reds will continue to be a trend in the marketplace.

So sort of big, robust, slightly, when we talk about sweet reds, big, robust, slightly sweeter generic red wines.

That's been a pretty significant trend and we don't see that diminishing in the near future.

At the low end, Moscato has been kind of up and down a little bit, so might, probably going to continue favorably, but not as robust as it was a couple of years ago.

So those are the trends, Tim.

Good stuff.

Bob, with regard to the construction costs and timing, I understand a lot of things like steel are dollar based, but are there peso-based costs associated with the Nava facility and is that having a benefit to the overall estimate of costs there?

Most of it, as you said Tim, most of the machinery and equipment are dollar based, actually most of the commodities and production are dollar based.

The big local cost, of course, is Mexican labor.

So Mexican labor being used on the construction will end up on the balance sheet and that will come down in price, so that will be good.

But it's not a huge percentage of the cost.

And same thing on operations.

Mexican labor in the plant, and in the glass plant, right, because we employ a lot of people down there and it's growing kind of geometrically.

And as long as the dollar stays stronger than the peso, that will be a bit of a benefit as well.

But the good news is because our end selling price in beer is based in US dollars, we're not very foreign exchange exposed, which is a great place to be because you will remember Australian wine for those years when the Aussie dollar got so strong it's very hard to maintain a good growth profit margin.

So we're balanced in the currency of our input costs and the currency of our selling price which is really just a good long place business model, it's a good place to be.

Thanks.

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

Hi, this is actually Stephanie on for Bill.

I have two questions, just the first in terms of what you're seeing in great cost inflation or deflation this year, and then what you expect the overall impact would be on your segments' margins?

And then my second question, looking at your smaller brands in your beer segment, you mentioned some new initiatives for your Victoria brand, but can you provide a little bit more color on what you're doing for your Pacifico brand?

Thanks.

Sure, I can take the first one on grapes.

We're actually doing very well on grape costs.

We had a very good year in FY15, and I take my hat off to our operations guys in the wine business, the wine makers blending the wine, and the guys in charge of sourcing the grapes and farming the grapes because we did a very good job buying wine and the costs, the landed costs per ton is kind of flat to even down a little bit.

And we've done a very good job on refining our wine blends to make the cost to the consumer a little bit less.

So we're looking good on the wine side which is why, one of the big reasons why we said we expect to maintain the improved gross profit margins that we experienced in the wine segment in 2015.

The question around Victoria and Pacifico, I'll let Rob answer.

Yes, so Pacifico, let's start with that is one of the smaller brands in our portfolio.

I actually think that it's a real sleeper and it's a brand that has a lot of opportunity for the future much like we saw Modelo Especial explode as a brand.

Pacifico, primarily West Coast, primarily Southern California is its really big base of business.

We're focusing our marketing around things like the World Surfing championships, we've got advertising campaigns in place, around basically discovered by surfers in Mexico, in Baja.

And we've got a draft program for Pacifico which has been, I would say, very well received.

So a smaller brand in the portfolio, but something with a lot of potential.

Victoria, again, a small brand, but the interesting thing about Victoria is it's the third largest brand in Mexico with a 15% market share and is very well known by the Hispanic -- Mexican Hispanic consumer, which really gives it a huge leg up versus any other new product that could be introduced in Mexico, from Mexico to the US.

A lot of these products, or one or two, that have been recently introduced are fundamentally made up products that the Hispanic consumer has never heard of.

That's a tough sell in that demographic.

With Victoria, we've also introduced cans.

We're expanding the distribution nationally and seeing some pretty strong growth, as I commented on initially, of 60% growth on that brand in last year and we see that momentum remaining strong into this year.

I mentioned just in general cans.

Cans is a huge opportunity for us.

Across all of our brands, Corona, Modelo Especial, as well as the other brands, we're really stepping up can introduction and it's an interesting trend in the beer business in general is that cans have gone from being perceived as sub-premium to being perceived as very premium form of packaging.

And that's probably been driven by the fact that the craft portion of the business, which is the other very fast growing portion of the business other than our portfolio, okay, has really adopted at a very high end cans as their primary packaging.

And the consumer has really accepted that, so that's opened the window to make cans a great premium package for our business.

And then you look at our business where cans, we have not been cans at all.

Cans represent approximately 3% of our total business, but if you look at the industry as a whole, it's like half of the beer business is in cans.

So the growth potential for cans is just absolutely phenomenal in our business.

And in our own particular case, as we've introduced cans, we've really seen it expand consumption as opposed to just simply cannibalize other forms of packaging because we haven't had packaging that is, I'll say, appropriate for venues where cans are particularly strong in the past.

So this has been a big, big advantage for us.

No, that's really very helpful.

Thanks so much for the additional color.

Your next question comes from Caroline Levy of CLSA.

Good morning, thank you very much.

I'd just like to dig into the D&A situation because it's going to be such a big factor as you bring on capacity.

It would be incredibly helpful, Bob, if you could, number one, tell us what the impact of expensing D&A was in the fourth quarter, for example?

And in some way frame whether you can give us the actual number that you're expecting for FY16, or maybe say that it's certainly not going to be as big as the benefit from your glass savings?

But what I'm worried about is at some point we hear that the D&A alone is offsetting all of the benefits of the volume growth, and so on.

But if you could help us get comfortable with that, that would be really helpful.

Yes, so good question, Caroline.

So, look, our D&A is going up, right, because we're spending all this capital, obviously.

So in FY16, our D&A is probably going up 20% to 25% over FY15 and that is because we're bringing on these new production lines, and actually towards the end of the year we actually bring on some hectoliters of beer.

So as that stuff goes into service you start depreciating it.

So that does create P&L headwinds as you go forward, but even with all that, as we discuss, we're estimating our operating profit margin, the beer segment, is up about 100 BPS next year and we're still reiterating the fact that we expect to get to the mid-30% range by the time the 20 million hectoliters is built out.

Thanks, and just to clarify, you've also carefully figured out what the inefficiencies of testing the lines and so on does to you, because, again, this is very new for you guys, but we do sometimes hear our margins are going to be hit by the inefficiencies of opening a new brewery and you, obviously, wouldn't be at full capacity for a little bit?

Yes, the good news, and, again, we're quite anomalous in this regard because it's not like we're building the brewery capacity utilization from organic growth, right?

We're moving the production from InBev to us, so although we won't be bringing the line up to the maximum capacity utilization that it is now, it will still be better than what you might see in other industries as they build, say, a greenfield facility and it takes them, say, 10 years to get up to full capacity utilization.

We won't be as slow as that.

And then as far as when these production lines come up, these are big complicated things, and, as you know, our brewery is highly automated, so there's a lot of software IT stuff going on.

And every line, you can't necessarily anticipate the gremlins that will come up.

So we are doing everything we can to offset that, but stuff happens.

But we don't think that will be in any way material and it will be relatively short lived and, we are not expecting that to happen, but it can.

But that's all reflected in the guidance that we provided for FY16.

That's great.

And then, if I could just understand in terms of the last two quarters in beer, your margins were actually down a little bit in the last two quarters.

What was driving that?

Was it the D&A?

And then in the first half of the year, do you expect more of that or can we look for margins to be up consistently in FY16?

Yes, again, to Rob's comment earlier, I'm not going to go crazy on quarters because it's kind of timing and stuff happens.

But, Caroline, the margins to which you're referring are they gross profit margins or operating profit margins?

Sorry, I was looking at EBIT margins, looked like they were down a little bit in each of the last two quarters in beer.

Yes, so the big reason for that is kind of ramped-up marketing spend will be the big reason for that.

In the beer industry, in our beer business, we've increased our marketing spend in FY14, it was 8% of sales, and we went up to 8.5% of sales in FY15 as we got into general market advertising for Modelo Especial, got a little more aggressive against Corona in the face of the glass recall because we wanted to completely negate any potential brand equity loss that we had there.

And I think we were successful on that.

And as Rob said earlier, we're ramping up some marketing around Pacifico, and we think that's being a very effective spend.

And the beer marketing guys actually do a very good job of tracking volume lift and the effectiveness of the various marketing expenditures.

So that's the big reason why the operating profit might have come down a little bit.

And then also the question Nik asked earlier, this anomaly in the fourth quarter because of the Corona glass recall and some other reclasses that also hurt the fourth quarter.

As long as our marketing spend, as Rob said earlier, we're also increasing our marketing spend in wine because we are a branded consumer product business and we think that's important to keep the consumer brand equity going across all our categories.

Thank you.

I have one last question.

Can you quantify the payment on wine in the fourth quarter?

The distributor payment?

No.

We are not going to get into that.

Okay, thanks so much.

Your next question comes from Mark Swartzberg of Stifel Financial.

Yes, thanks.

Good morning, guys.

Couple questions.

First, also on the margin trends here in beer, Bob, oil prices eventually should be a benefit to your shipping costs from Mexico here to the US.

Can you just give us a flavor for how beneficial that's been and how beneficial that might be?

Yes, so good question because it's kind of a macro trend that you guys are probably are seeing in a lot of companies.

So net-net even at this day this is net good news for us because, obviously, we will benefit from the reduced oil prices on our unhedged portion of our oil exposure, and most of our oil exposure is around freight, and there's more in beer than wine because they just ship more cases.

So I'd say oil prices is a net positive for us, but when you guys get into the numbers you'll see that we still had around a $30 million loss on, I'll say, unrealized commodity hedges and most of those were around diesel hedges.

Those losses will flow through the P&L over the next two years, a reasonable amount will flow through the P&L in FY16, that would have been included in our guidance.

But net-net the reduction to oil prices, I'll say, from a FY16 is a positive, and, of course, if they say low it will be even more of a positive as these out-of-the-money hedges get behind us.

Got it.

And is it fair to think, at the moment when you're bringing beer into the US you're bringing some, so to speak, of your own beer from Nava and then some being purchased from ABI still, so the actual shipping cost for those two classes of beer, is there any difference?

We know that, obviously, as it gets into Nava it cuts closer to the US, but the actual kind of per-mile charge of getting it to a given location in the US from a brewery that's owned by ABI versus a brewery that's owned by you, are they one and the same, or is there some difference in that regard, too?

No, there's actually a reasonable amount of difference.

Let's see, quantitative difference, there's a lot more miles that we travel in the US than we do in Mexico, of course, right?

I'll also say that there are very different freight negotiations south of the border and north of the border.

So south of the border there's not as much competition around freight, and south of the border it's almost exclusively rail freight that we do.

And actually, even north of the border most of our cost is rail freight, as well.

But I'd say that they are very different competitive environments in Mexico versus the US.

And maybe I'm not, what I'm trying to get at is once a product crosses the US border, if it's coming out of Nava versus coming out of a brewery that's owned by ABI from a kind of landed in the US perspective, is the per-mile charge any different versus, in those two classes, those two different barrels so to speak?

Not in the US.

Not in the US, got it.

Great.

And then on the balance sheet, rates being where they are, one could make that argument that you should stay kind of in and around the upper end of that three to four range you have.

You're at 4.1 now.

Is it fair to think you want to stay close to four or how do you think about that?

Yes, our desired range would be in between three and four and we're trying to balance a lot of constituencies.

Obviously, the rating agencies would like us to be very low in that range, and probably shareholders would like us to be high in that range because they presume what we'll do is borrow money and give cash back to shareholders.

So we're taking open to account, so probably ideal is in between three and four.

Got it, okay, last one on that.

If we just think about M&A, you've commented on this a few times over the last few quarters, and, Rob, you made a comment that you are open to M&A in the beer business and certainly there could be some tuck-ins.

But when we think about M&A in terms of sheer scale, whether it's beer or wine and spirits, how are you thinking about this scale of any acquisition you might do in terms of like the upper limit on such a transaction?

Yes, when we think about scale we're really talking, I think, primarily about tuck-in brand type acquisitions in the couple hundred million probably range or less.

There isn't anything really big in any of the three categories that I'll say ostensibly makes a lot of sense to us.

So it's really just, I would say, opportunistic tuck-in brand type opportunities across the three categories.

Great.

Okay, thank you, guys.

Your final question comes from Rob Ottenstein of Evercore ISI.

Great, thank you very much.

In terms of the draft business, we haven't talked about that too much today.

Is the percent of your business in draft is about 2% to 3%, is that right?

How much was it up last year, and can you talk a little bit about what percentage of the potential accounts you have draft available now for Corona Extra and Corona Light, please?

Yes, we continue, I'll start off and then Rob can follow up.

We continue to be very bullish on draft.

We feel that we can sell quite well into retailers because our brands can distinguish themselves from amongst the thousands of IPAs out there that are on draft handles that may not turn as fast as us.

We think right now Corona Light is our biggest opportunity for draft, and Corona Light, pretty much, from a very small base, but doubled its draft volume in FY15.

As far as Corona Extra draft, that's still in very small test right now, so the big push is on Corona Light and I think Pacifico is still probably our largest draft brands but our brands really position themselves very well in draft accounts.

Yes, I think the only thing that I would add is much like cans, it represents a relatively small percentage of our business and a relatively large percentage of the overall beer business, so it remains a big opportunity for us.

We're being prudent in how we introduce draft for our biggest brand, Corona Extra, to see how it impacts the brand where it's traditionally been only in glass and on-premise, so we're interested to see exactly what happens in those accounts when we put draft in.

I think that sort of the results of our testing thus far has been that when we put draft in, even in high market share on-premise establishments, that it tends to be market expanding as opposed to purely cannibalistic.

So we think that's a very positive trend.

Of course, everything that we do, we do it keeping in mind that we aren't going to cannibalize higher margin versus a lower margin business.

Draft is essentially the same kind of margin structure as our other package formats in general, so we aren't overly concerned with it.

But on the other hand, we certainly, we like the fact that it appears to be significantly market expanding when we put it in.

We actually tend to see increased sales of glass in a surrounding area when we put draft, Corona Extra draft, into an establishment.

And that's sort of been, I think, the traditional thinking on draft is that it not only has benefit from a pure substantive point of view, id est, another format to consume the product, but it also has a marketing or advertising component that helps to sell your other packages off-premise, and we are definitely seeing that.

That's terrific.

And then, just on cans, can you give us a sense of where you are in terms of rolling out your can capacity, how much is in-house right now and how much do you, what percentage do you rely on ABI, and at what point will you be 100% in-house on cans?

Yes, so we're pretty much self sufficient on cans right now having put in our can capacity already, and we can produce pretty much as much in cans as we could possibly need.

As I said, we're just rolling out a new can for Corona Extra, Corona Extra has been about, I think, 3% can, so very huge opportunity.

Our business overall, meaning everything combined, is about 20% of cans in a market that's, I think, closer to about 50% cans.

So a huge opportunity there and no capacity constraints whatsoever, and we can supply 100% of our cans at this stage.

So it's the year of the can.

Terrific, thank you very much.

This concludes the question-and-answer session of today's conference.

I would now like to turn the floor back over to Mr. Rob Sands for any closing remarks.

Well, thanks, everybody, for joining our call today.

I'd like to conclude by saying that we are extremely pleased with our performance in FY15, and we are already hard at work to deliver the exciting opportunities we have before us in FY16.

I am particularly proud of the fact that we are initiating a dividend for the first time in the 70-year history of our Company.

This complements our efforts to continue to deliver shareholder value.

As we have discussed in detail today, we remain committed to driving the growth of our business while continuing to invest in our brands and our operations.

Our next quarterly call will be scheduled for the beginning of July.

In the meantime, we look forward to a very busy spring selling season.

You can look for us as we kick off our Cinco De Mayo celebration by ringing the closing bell at the New York Stock Exchange.

And as always, we hope you will enjoy our fine products for your own celebrations, both big and small, in the coming months.

So, again, thank you for your participation.

Thank you.

This concludes your conference.

You may now disconnect.