Constellation Brands, Inc. (STZ) Q4 2013 Earnings Report, Transcript and Summary

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. [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. 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 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 U.S. 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 U.S. 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 U.S. 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 U.S. but the #3 brewer and supplier of beer for the U.S. market. I would like to reiterate that there are 3 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…

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 U.K. business. Consolidated equity earnings totaled $234 million versus $229 million in the…

[Operator Instructions] Your first question comes from the line of Tim Ramey of D.A. Davidson. Timothy S. Ramey - D.A. Davidson & Co., Research Division: 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 kind of 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-priced products continue to grow at a faster rate than the lower-priced products. So it's primarily higher grape cost coming through and no pricing, which is driving some margin erosion, but a relatively modest level of margin erosion. 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. Timothy S. Ramey - D.A. Davidson & Co., Research Division: 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 it was that -- is that also something that Modelo corporate is launching as well?

Yes. By the way, that's Chelada. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Chelada, okay, sorry.

It would be a strange combination to have a beer colada. I'd be... Timothy S. Ramey - D.A. Davidson & Co., Research Division: I was going to let you explain it.

We're not doing coconut beer, just to be clear. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Fair. 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, Clamato juice and beer, and it's a typically consumed combination. And the answer is that, that's strictly a Crown innovation, although Modelo does have Cheladas in Mexico. So it is a Crown innovation for the U.S. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Doesn't sound any worse than putting coconut juice in it.

Well, it's actually quite tasty.

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

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. And just given the cost inflation, I was just 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 more of a medium- to long-term opportunity with capacity expansion in Piedras Negras, can you just maybe either qualitatively or just give us some color as to what kind of margins you think is more of an appropriate margin once you've moved all of the capacity into Piedras Negras and what's left in your sort of long-term assumption?

Yes, Judy. This is Bob. So the way this will work, we have transition services agreement with InBev in order to secure the fact that we can keep the U.S. 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 brewery -- core brewery efficiencies, what's going on in U.S. 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 3 years, we will be making all of our own beer, because as you get up to a $20 million (sic) [20 million] hectoliter capacity, that should be enough production capacity to last us, say, 5 to 7 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, just on the free cash flow guidance, so -- and it relates to your leverage target. So if I hear you, you're saying, you're kind of in the low 5s today. In 2 years, you think that will step down to below kind of 4x, assuming with the free cash flow generation -- so it kind of implies maybe a free cash flow, ongoing free cash flow number of, say, maybe $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 kind of comment on what is sort of 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 2 big drivers will be reduced leverage and reduced interest expense, right, as we delever. Reduced capital spending, but that won't happen until like year 4, right, because we'll be spending capital on the brewery for years 1, 2, 3. And actually, year 2 and year 3 will be higher than year 1, 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. And also, Judy, as we get past the first year, we'll most likely have lower onetime costs, right, because we have the initial financing fees and the initial kind of 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. A total of $80 million.

Right. Okay. Understood.

Pretty big numbers, right, are 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.

Your 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 maybe 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've 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 cost 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 then on the topic of grape pricing, it looks like, over the next 5 to 8 years or so, we're going to be going into a much tighter supply situation. How much -- how differently should we be looking at or thinking about the next 5 years in wine versus what the last 5 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 greater -- 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 sort of how things transpired from 2011 to 2012, 2011 was a little short. Everybody cried wolf, and there was going to be a grape shortage. It 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 is sort of balanced; South America, balanced, depending on exactly where you're talking about. So it's some and some. So 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 undersupply. 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've indicated.

Okay, got it. And then very quickly on taxes. You were at, I believe, 26% fiscal 2012. You're looking for 37%. It's a big jump. Is it simply that there were some credits that disappear and no longer exist, or is there a chance for that 37% to be lower for fiscal '13, fiscal '14 for you?

As you know, Kaumil, over the last 4 or 5 years, we've had some favorable outcomes in our tax rate, and our effective tax rate is probably, average, maybe 30% or even below that. Last year was a very low rate. What those 5 years included were some positive outcomes from foreign tax credits, okay? 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.

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

I have a question about Crown's 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%?

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 2 fewer selling days in this year's fourth quarter versus last year's fourth quarter, right? So that doesn't seem like a lot, but it is in a quarter, right? And you are correct, we did not have St. Pauli Girl this year. We -- I don't know -- 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. In 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 positive -- the overlap of the positive weather in the previous year. Now that was our reported sales, right? 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 allotted shipment day influence.

Would you guess that, adjusted for those items, maybe your sales would've been up 3% to 4%?

I haven't done that calculation, so...

And was there any pricing in there?

Well, the only pricing is there -- 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 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 in volumes.

And I think you indicated before that maybe that pricing is averaging about 2%? Is that, what -- 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 is -- I know that you're investing in it, but is the ratio going to be up? Or is it just going to -- is the advertising just 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, still not a huge number. It's between 4% and 5%. So in fiscal '12, it was closer to 4% -- I'm sorry, fiscal '13, it was closer to 4%. Fiscal '14 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 the sales in...

Sorry, go ahead.

Right. And are you going to be breaking out sales and profits for Wine and Spirits versus Beer going ahead? Are we going to see the 2 separately?

Yes. Most likely, what our segments reporting will look like is, you will have a Beer segment, which will include what we currently call Crown plus the brewery, right, so that will be a complete segment from buying the raw materials through selling through to the distributors, okay? 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.

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

This is Sarah Miller on for Bill. Our question today is kind of 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. I'm just kind of wondering, was there anything in particular that drove that higher level? Was there a specific brand? And could you give us some color around whether this is sustainable going forward?

Sure. The fourth quarter, as Rob said 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's 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 2 big drivers.

I mean, 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 spirits sales to be in the mid-single digit for fiscal '14, all right? 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. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: I guess a few questions. Rob, it sounds like once you get past fiscal '14, you still feel pretty good about the Wine and Spirits business's ability to put out mid-single-digit-type EBIT growth. Is that still your long-term view of that business?

Yes. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: Okay, and then, sorry?

I said yes. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And on Piedras Negras, can you speak to procurement specifically? It seems like the point of debate out there, and you guys seem to have some scale you could actually bring to the advantage of your -- that business's procurement needs. Is it -- 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? I mean, Modelo's not -- doesn't seem like it's the strongest at 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, okay? So one of 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, okay? And the -- when we look at the potentiality of combining some of our Wine and Spirits procurement activities around, as I 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, malt, hops, crowns, things to this effect, cans, should be relatively neutral. But the major components, we may have some advantage. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: That's great. And I don't know if June 5 is too soon, but when we -- 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, I mean, are we going to -- are you going to lay out for us kind of a view of the kind of the 3-year pro forma scenario of what this new entity that, from a beer perspective, will look like? Are we going to speak kind of more qualitatively? Is it something that comes at year -- have you -- 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 details 3 years because, as you said, it's just too early. But we will be giving some flavor about -- around what we look like when we -- how much free cash flow can this thing generate, what are the COGS makeups, 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, right? High-end imported beer, premium wine, premium spirits. And our goal is to maintain or grow share in those categories, right, 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 3-year financials, but we'll be talking around those themes. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: That's great. That's very helpful. And then finally, just thinking about the cash flow profile of the business 2 years out, obviously, a lot higher than what it's been historically. The leverage comes down. You're now, as you say, kind of 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 interests? Do you continue to be more focused on Wine and Beer? I mean, as you think about those 3 categories, how does your thinking about emphasis change?

It's a little hard to judge. It -- 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 3 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 3 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 FY '13, 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…

Now you're getting all these flavors confused. We're not doing coconut beer, and we're not doing cinnamon SVEDKA. That was tomato juice and beer, okay, and cinnamon whisky.

You guys must be mixing your own cocktails, so I... Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: So we're not going to be see a V8 SVEDKA any time soon? That's good.

You never know.

Your next question comes from Robert Ottenstein of ISI.

A couple of questions on the -- 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 a CFO, if you will, a CEO, if you will, for the Beer business? Any new management there to help kind of 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'll 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 people who built the brewery besides. It's a brand-new brewery. It was only commissioned, and it's 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 ensure that we would have their expertise going forward over the next 3 years as we integrate the brewery into our production operations as well.

Okay. So -- but who specifically will be responsible and held accountable for the -- now the total earnings profit of the Beer business?

Yes, well, #1, 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 a very strong team of people who are responsible for the overall business. But Bill Hackett, okay, 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. Second, if you go through, I guess, some of your SEC filings this week, there's some discussion, a way of continuing government oversight, I guess, to get to the 20 million hectoliters over the next 3 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's 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 3 years and ensuring that the milestones that we've set forth are met and the expansion is completed so that the production is -- so that the production aspect of our Beer business is entirely independent at the end of the 3-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 Negras, 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 any -- going to be any incremental cost in terms of logistics supplying the United States out of 1 market as opposed to what's today, I believe, 3 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'll 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 U.S. market than any other plant that -- or brewery that was previously supplying the U.S.

Your next question comes from the line of John Faucher of JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: Just wanted to ask 2 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. I mean, 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 talked about the impact of FX. As we look at sort of 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?

Yes. So I would encourage everybody to just kind of forget about the $310 million. And the $310 million was just an estimate at the time, so that the number we feel that would be at $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, right? 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 U.S. dollar-based, things like glass, aluminum, even like hops and barley and things like that. So really, the big foreign exchange exposure is the labor in the brewery is just 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 more -- that's translation versus transaction, because there's really no cash involved. So as you -- as you get down -- well, and the other thing I'll say is, so Day 1, when we're buying, say, 30%, 40% of our volumes from InBev, okay, as we buy those finished products from them, that is a dollar-denominated transaction. We will pay them in dollars, right, so we have no foreign exchange exposure. As we move towards producing at the Piedras Negras brewery, our foreign exchange exposure will increase, all right, because we'll be hiring more labor there, so -- 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, okay? Now the COGS number is a big number, right? It's $1.5 billion to $2 billion, depending how much volume you say it is. But there's probably only about 25% to 35% of that is peso-denominated.

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

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 sort of a more normalized level of bulk wine purchases versus last year?

Yes. Our working capital assumptions for '14 aren't dramatically different from '13. The -- 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, so -- 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 onetime cost and all that kind of stuff.

Got it. And then, how should we think about the post-closing purchase price adjustment and sort of 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 the of existing cash for the revolver, right? 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 and OI growth for 2014? Because if I take a look at that business over the past several years, OI and 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.

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.