Inflation: ‘It’s not clear we’ve hit the peak’ yet in the booze business, Constellation CEO says

Constellation Brands CEO and President Bill Newlands joins Yahoo Finance Live to talk about beer and liquor sales, overseas demand trends, inflationary prices, new hard seltzer product lines, and the brand's stock buyback plans.

Video transcript

- In honor of Cinco de Mayo, our very own Brian Sozzi is live at the New York Stock Exchange with the CEO of Constellation Brands. Now, this is the company if you don't know that makes Corona and also Modelo beers. Brian, a fun assignment for you.

BRIAN SOZZI: Yeah. A tough day for me, Seana. Bill, good to see you actually in the flesh. You're real. We actually exist here. Good to see you here today. Look, we're supposed to be celebrating Cinco de Mayo. But it was a tough day for the markets. As the leader of a brand and a company like Constellation Brands, what do you think after a sell off like this?

BILL NEWLANDS: It's always a tough day when you see this. But, fortunately, we're in an industry where we're an affordable luxury. And I think especially on a day like Cindo de Mayo, people are still ready to have a beer or have a glass of wine or have a spirit.

BRIAN SOZZI: Well, I think after a recession like this you can use it probably about eight Coronas because it's been a long day. And I should say your stock was barely down on the session. But talk to us a little bit about the recovery in the beer business.

BILL NEWLANDS: Well, our beer business is doing extraordinarily well, as we've talked many times before. Modelo in particular. Modelo was up 15% last year. And we really think this is about to become America's favorite beer. So we couldn't be more excited about it. And Corona Extra had just a spectacular year last year, up 9% as well. And obviously we're in our new fiscal year now. And we're off to a great start. So we're very excited about our prospects.

BRIAN SOZZI: What is the state of bars in America?

BILL NEWLANDS: Well, we're finally seeing a lot of opening. Obviously, you look at various markets, and some places are open and some less so. But, fortunately, as you're starting to get to spring, you're seeing more outdoor dining, which gives people a chance to continue to engage in the on premise.

BRIAN SOZZI: Is it different between the US and overseas? What are you seeing overseas?

BILL NEWLANDS: Well, we have less susceptibility to overseas because most of our businesses here in the US. But it really depends on the country. And it and it can vary widely. Fortunately in our main market here in the US, we are seeing a lot more opening. And you're seeing a lot of consumers with pent up demand to be out in the marketplace.

BRIAN SOZZI: I've viewed this view that peak inflation doesn't exist. That's what everybody's talking about right now. But I talked to a lot of food companies. They're not seeing it. They're seeing double digit levels of inflation. What are you seeing?

BILL NEWLANDS: It's going to be wide ranging this year. I think it depends to some degree on how much you're hedged. We're hedged a lot and more than we normally would be, which I think will help. But it's not clear that we have hit the peak just yet. I mean, we think it's going to be high inflationary pressures throughout our fiscal year.

BRIAN SOZZI: Where are you seeing the most pressure?

BILL NEWLANDS: I think you see it in things like transportation, particularly in things like trucking. You're seeing it in some commodity goods that are input costs. We see it in glass, as an example. So there's a wide range of things. And it's a wide range of differences depending on the particular commodity. But certainly inflation is going to be a challenge throughout the year.

BRIAN SOZZI: Is it difficult to push through price increases in this environment? You do sell a category that is price sensitive. And it's very competitive.

BILL NEWLANDS: It is price sensitive. And I think we have to be very careful with our consumer. We're not interested in losing the consumer in the process. We're going to maintain what we normally do, which is 1% to 2% pricing over the course of the year, which we think is judicious in this kind of environment. We do not want to lose our consumer.

BRIAN SOZZI: Hard seltzer. Peak?

BILL NEWLANDS: Well, I think it's certainly over the peak from what it was when it was growing like a weed. But certainly we think it's still going to be a key factor. And we're doing some things. Corona Seltzeritas have just been introduced.

BRIAN SOZZI: What are those?

BILL NEWLANDS: It's just what you think it is. It's a bit of beer product with a bit of rita-type flavoring. It's terrific. Very, very refreshing.

BRIAN SOZZI: What about CBD drinks? Are you in that market? Do you want to get more aggressively in that market? You still have the stake in Canopy, right?

BILL NEWLANDS: We do. And Canopy is very much focused on drinks. They think that that's going to be a critical part of the use factors going forward. And they've got some outstanding products that they have in Canada. And there's also some here in the United States, like Quattro as an example, that they've introduced into this market. So we believe that's going to be an important part of the overall cannabis piece as you go forward.

BRIAN SOZZI: Bill, it's the first time me actually seeing you in person during the pandemic. It's been like three years of interviews. People, they don't understand that. But as a leader, how has the pandemic changed you? And how has it changed the company?

BILL NEWLANDS: I think you have to stay much more focused on what you're going to do. It's much more difficult to do a myriad of things when you're not together as a group. So we've tried to keep the focus very tightly in on what we think is going to be critical factors for our company and for the consumer. We've communicated much more internally than we probably had historically because it's important to keep our team engaged. And we've been very, very pleased with how that's worked. But it's been much more of a challenge. And it's been a learning experience all the way along. But communication has really been the key.

BRIAN SOZZI: Last question for you. Acquisitions. Do you see yourself in the market for an acquisition that brings you into a new market?

BILL NEWLANDS: Largely we're focused on the capital strategy that we've had, which is paying down our debt. We've just finished an ASR on our way to paying down $5 billion to our shareholders through dividends and share repurchases. We're very focused on that. We've done some minor bolt ons. We added Lingua Franca and Austin Cocktails. Austin Cocktails was the very first female founder investment that we made when we started that program. And we've now brought it in-house. So we are doing some minor things. But we're very focused on our capital allocation plan that we've talked about before.

BRIAN SOZZI: Can we go grab a beer now?

BILL NEWLANDS: Let's do it.

BRIAN SOZZI: All right. On that, I'll end it there. Constellation Brands CEO Bill Newland. Seana, back to you. Again, very tough assignment. I'll see you in about a week from now. I'm going to get some beer.

- You guys both deserve a cool drink right now. All right. Brian Sozzi, great interview as always. Thanks so much.