CONSTELLATION BRANDS INC

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Strategy. This section provides a description of our strategy and a discussion of a recent development and significant divestitures, acquisitions, and investments.

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Strategy. This section provides a description of our strategy and a discussion of recent developments and significant divestitures and investments.

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Results of operations. This section provides an analysis of our results of operations presented on a business segment basis for the three months ended November 30, 2023, and November 30, 2022, and nine months ended November 30, 2023, and November 30, 2022. In addition, a brief description of significant transactions and other items that affect the comparability of the results is provided.

Current wording

Results of operations. This section provides an analysis of our results of operations presented on a business segment basis for the three months ended May 31, 2024, and May 31, 2023. In addition, a brief description of significant transactions and other items that affect the comparability of the results is provided.

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We are an international producer and marketer of beer, wine, and spirits with operations in the U.S., Mexico, New Zealand, and Italy with powerful, consumer-connected, high-quality brands like Corona Extra, Modelo Especial, the Robert Mondavi Brand Family, Kim Crawford, Meiomi, The Prisoner Wine Company, High West, Casa Noble, and Mi CAMPO. In the U.S., we are one of the top growth contributors at retail among beverage alcohol suppliers. We are the third-largest beer company in the U.S. and continue to strengthen our leadership position as the #1 high-end beer supplier and the #1 share gainer across the U.S. beer market. Within wine and spirits, we have reshaped our brand portfolio to a higher-end focused business aimed to deliver net sales growth and margin expansion. The strength of our brands makes us a supplier of choice to many of our consumers and our customers, which include wholesale distributors, retailers, and on-premise locations. We conduct our business through entities we wholly own as well as through a variety of joint ventures and other entities.

Current wording

We are an international producer and marketer of beer, wine, and spirits with operations in the U.S., Mexico, New Zealand, and Italy with powerful, consumer-connected, high-quality brands like Corona Extra, Modelo Especial, Robert Mondavi Winery, Kim Crawford, Meiomi, The Prisoner Wine Company, High West, Casa Noble, and Mi CAMPO. In the U.S., we are one of the top growth contributors at retail among beverage alcohol suppliers. We are the second-largest beer company in the U.S. and continue to strengthen our leadership position as the #1 share gainer in the high-end beer segment and the overall U.S. beer market. In Fiscal 2024, Modelo Especial became the #1 beer brand in the U.S. beer market in dollar sales and continues to hold that position. Within wine and spirits, we have reshaped our brand portfolio to a higher-end focused business and continue to expand our supply channels through DTC and international markets. The strength of our brands makes us a supplier of choice to many of our consumers and our customers, which include wholesale distributors, retailers, and on-premise locations. We conduct our business through entities we wholly own as well as through a variety of joint ventures and other entities.

Previous wording

Effective May 31, 2023, we changed our internal management financial reporting to consist oftwo business divisions: (i) Beer and (ii) Wine and Spirits andwe now report our operating results in three

Current wording

Our internal management financial reporting consists oftwo business divisions: (i) Beer and (ii) Wine and Spirits andwe report our operating results in three segments: (i) Beer, (ii) Wine and Spirits, and (iii) Corporate

Previous wording

In the Beer segment, our portfolio consists of high-end imported beer brands and ABAs. We have an exclusive perpetual brand license to produce our Mexican beer portfolio and to import, market, and sell such portfolio in the U.S. In the Wine and Spirits segment, we sell aportfolio that includes higher-end wine brands complemented by certain higher-end spirits brands. Amounts included in the Corporate Operations and Other segment consist of costs of executive management, corporate development, corporate finance, corporate growth and strategy, human resources, internal audit, investor relations, IT, legal, and public relations, as well as our Canopy investment and investments made through our corporate venture capital function. All costs included in the Corporate Operations and Other segment are general costs that are applicable to the consolidated group and are, therefore, not allocated to the other reportable segments. All costs reported within the Corporate Operations and Other segment are not included in our CODM’s evaluation of the operating income (loss) performance of the other reportable segments. The business segments reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management, and the structure of our internal financial reporting.

Current wording

Operations and Other. In the Beer segment, our portfolio consists of high-end imported beer brands and ABAs. We have an exclusive perpetual brand license to produce our Mexican beer portfolio and to import, market, and sell such portfolio in the U.S. In the Wine and Spirits segment, we sell aportfolio that includes higher-end wine brands complemented by certain higher-end spirits brands. Amounts included in the Corporate Operations and Other segment consist of costs of corporate development, corporate finance, corporate strategy, executive management, growth, human resources, internal audit, investor relations, IT, legal, and public relations, as well as our Canopy investment and investments made through our corporate venture capital function. All costs included in the Corporate Operations and Other segment are general costs that are applicable to the consolidated group and are, therefore, not allocated to the other reportable segments. All costs reported within the Corporate Operations and Other segment are not included in our CODM’s evaluation of the operating income (loss) performance of the other reportable segments. The business segments reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management, and the structure of our internal financial reporting.

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•deploy capital in line with disciplined and balanced priorities; and

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•deploy capital in line with disciplined and balanced priorities;

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•deliver on impactful ESG initiatives that we believe are not only good business, but also good for the world.

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•deliver on impactful ESG initiatives that we believe are not only good business, but also good for the world; and

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We will continue to strive for success by ensuring consumer-led decision making drives all aspects of our business; building a diverse talent pipeline with best-in-class people development; investing in infrastructure that supports and enables our business, including data systems and architecture; and exemplifying intentional and proactive fiscal management. We place focus on positioning our portfolio on higher-margin, higher-growth categories of the beverage alcohol industry to align with consumer-led premiumization trends, which we believe will continue to drive faster growth rates across beer, wine, and spirits. To continue capitalizing on consumer-led premiumization trends, become more competitive, and grow our business, we have employed a strategy dedicated to organic growth and supplemented by targeted investments and acquisitions. We also believe a key component to driving faster growth rates is to invest and strengthen our leadership position within the DTC and 3-tier eCommerce channels. We have launched a multi-year Digital Business Acceleration initiative, which we believe will enable us to drive results by enhancing our technology capabilities in key areas. In Fiscal 2024, we continue to focus our Digital Business Acceleration initiative efforts on procurement, end-to-end supply chain planning, and marketing optimization, as well as introducing a new focus area, logistics. Additionally, we believe our continued focus on maintaining a strong balance sheet provides a solid financial foundation to support our broader strategic initiatives.

Current wording

We will continue to strive for success by ensuring consumer-led decision making drives all aspects of our business; building a diverse talent pipeline with best-in-class people development; investing in infrastructure that supports and enables our business, including data systems and architecture; and exemplifying intentional and proactive fiscal management. We place focus on positioning our portfolio on higher-margin, higher-growth categories of the beverage alcohol industry to align with consumer-led premiumization, product, and purchasing trends, which we believe will continue to drive faster growth rates across beer, wine, and spirits. To continue capitalizing on consumer-led premiumization trends, become more competitive, and grow our business, we have employed a strategy dedicated to organic growth and supplemented by targeted investments and acquisitions. We also believe a key component to driving faster growth rates is to invest and strengthen our position within the DTC and 3-tier eCommerce channels. We believe our multi-year Digital Business Acceleration initiative will enable us to drive results by enhancing our technology capabilities in key areas. In Fiscal 2025, we continue to focus on end-to-end digital supply chain planning, logistics, and procurement, as well as introducing a new focus area, revenue growth management. Additionally, we believe our continued focus on maintaining a strong balance sheet provides a solid financial foundation to support our broader strategic initiatives.

Previous wording

Our business strategy for the Beer segment focuses on strengthening our leadership position in the high-end segment of the U.S. beer market and continuing to grow our high-end imported beer brands through maintenance of leading margins, enhancements to our results of operations and operating cash flow, and exploring new avenues for growth. This includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, including within the 3-tier eCommerce channel, as well as continued expansion, optimization, and/or construction activities at our breweries in Mexico. Additionally, in an effort to compete more fully in growing sectors of the high-end segment of the U.S. beer market, we have leveraged our

Current wording

Our business strategy for the Beer segment focuses on upholding our leadership position in the U.S. beer market, including the high-end segment, and continuing to grow our high-end imported beer brands through maintenance of leading margins, enhancements to our results of operations and operating cash flow, and exploring new avenues for growth. This includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, including within the 3-tier eCommerce channel, as well as investing in the next increment of modular capacity additions required to sustain our momentum. We continue to focus on consumer-led innovation by creating new line extensions behind celebrated, trusted brands and package formats, as well as new to world brands, that are intended to meet emerging needs.

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Expansion, optimization, and/or construction activities continue under our Mexico Beer Projects to align with our anticipated future growth expectations and we now expect to spend approximately $4 billion between Fiscal 2024 and Fiscal 2028 on capital expenditures for our Beer segment. Additionally, we are pursuing the sale of the remaining assets at the canceled Mexicali Brewery after exploring various options; however, we may not be successful in completing any such sale or obtaining other forms of recovery.

Current wording

Expansion, optimization, and/or construction activities continue under our Mexico Beer Projects to align with our anticipated future growth expectations.

Previous wording

Our business strategy for the Wine and Spirits segment focuses on higher-end brands, improving margins, and creating operating efficiencies. We have reshaped our portfolio primarily through an enhanced focus on higher-margin, higher-growth wine and spirits brands. Our business is organized into two distinct commercial teams, one focused on our fine wine and craft spirits brands and the other focused on our mainstream and premium brands. While each team has its own distinct strategy, both remain aligned to the goal of accelerating performance by growing organic net sales and expanding margins. In addition, we are advancing our aim to become a global, omni-channel competitor in line with consumer preferences. Our business continues to progressively expand into DTC channels (including hospitality), 3-tier eCommerce, and international markets, while continuing to grow in U.S. 3-tier brick-and-mortar distribution. In markets where it is feasible, we entered into a contractual arrangement with Southern Glazer’s Wine and Spirits to consolidate our U.S. distribution in order to obtain dedicated distributor selling resources which focus on our U.S. wine and spirits portfolio to drive organic growth.

Current wording

Our business strategy for the Wine and Spirits segment continues to focus on higher-end brands, improving margins, and creating operating efficiencies. We have reshaped our portfolio primarily through an enhanced focus on higher-margin, higher-growth wine and spirits brands. Our business is now organized into three distinct category-based teams focused on (i) U.S. wine, (ii) international wine, and (iii) spirits. While each team has its own distinct brand execution strategy, all three remain aligned to the goal of accelerating performance by growing organic net sales and expanding margins. In addition, we are advancing our aim to become a global, omni-channel competitor in line with consumer preferences. Our business continues to progressively expand into DTC channels (including hospitality), 3-tier eCommerce, and international markets, while remaining a major supplier in U.S. 3-tier brick-and-mortar distribution. In markets where it is feasible, we entered into a contractual arrangement with Southern Glazer’s Wine and Spirits to consolidate our U.S. distribution in order to obtain dedicated distributor selling resources which focus on our U.S. wine and spirits portfolio to drive organic growth.

Previous wording

We remain committed to our long-term financial model of: growing sales, expanding margins, and increasing cash flow in order to achieve earnings per share growth as well as our target net leverage ratio and dividend payout ratio; investing to support the growth of our business; and delivering additional returns to stockholders through periodic share repurchases. Our results of operations and financial condition have been affected by inflation, changing prices, reductions in discretionary income of consumers available to purchase our products, and shifting consumer behaviors, as well as other unfavorable global and regional economic conditions, global supply chain disruptions and constraints, and geopolitical events. We expect some or all of these impacts to continue during the remainder of Fiscal 2024 which could have a material impact on our results of operations. We intend to continue to monitor the inflationary environment and the impact on the consumer when we consider passing along rising costs through further selling price increases, subject to normal competitive conditions. In addition, we continue to identify on-going cost savings initiatives, including our commodity and foreign exchange hedging programs. However, there can be no assurance that we will be able to fully mitigate rising costs through increased selling prices and/or cost savings initiatives. Furthermore, to the extent climate-related severe weather events, such as droughts, floods, wildfires, extreme heat, and/or late frosts, continue to occur or accelerate in future periods, it could have a material impact on our results of operations and financial condition.

Current wording

We remain committed to our long-term financial model of: growing sales, expanding margins, and increasing cash flow in order to achieve earnings per share growth as well as our target net leverage ratio and dividend payout ratio; investing to support the growth of our business; and delivering additional returns to stockholders through periodic share repurchases. Our results of operations and financial condition have been affected by inflation, changing prices, reductions in discretionary income of consumers available to purchase our products, and shifting consumer behaviors, as well as other unfavorable global and regional economic conditions, global supply chain disruptions and constraints, and geopolitical events. We expect some or all of these impacts to continue in Fiscal 2025 which could have a material impact on our results of operations. We intend to continue to monitor the inflationary environment and the impact on the consumer when we consider passing along rising costs through further selling price increases, subject to normal competitive conditions. In addition, we are continuing our commodity and foreign exchange hedging programs while also seeking to identify additional cost savings initiatives. However, there can be no assurance that we will be able to fully mitigate rising costs through increased selling prices and/or cost savings initiatives. Furthermore, to the extent climate-related severe weather events, such as droughts, floods, wildfires, extreme heat, and/or late frosts, continue to occur or accelerate in future periods, it could have a material impact on our results of operations and financial condition.

Previous wording

During the course of our history, we have been committed to safeguarding our environment, making a positive difference in our communities, and advocating for responsible consumption of beverage alcohol products. We believe our ESG strategy enables us to better meet stakeholder expectations, reflects our Company values, and directly address pressing environmental and societal needs that are important to our stockholders, communities, consumers, and employees.

Current wording

During the course of our history, we have been committed to safeguarding our environment, making a positive difference in our communities, and advocating for responsible consumption of beverage alcohol products. We believe our ESG strategy enables us to better meet stakeholder expectations and create and protect value for our business, reflects our Company values, and directly address pressing environmental and societal needs that are important to our stockholders, communities, consumers, and employees.

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Specifically, we have focused on areas where we believe we have the greatest opportunities to make meaningful, positive impacts for people and the planet, and we dedicate our resources towards:

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Specifically, we have focused on areas where we believe we have the greatest opportunities to make meaningful, positive impacts for people and the planet in a manner that strengthens our Company, and we dedicate our resources towards:

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Improve water availability and resilience for our communities where we operate; reducing GHG emissions through energy conservation and renewable energy initiatives; and reducing operational waste and enhancing our use of returnable, recyclable, or renewable packaging

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Improving water availability and resilience for our communities where we operate; reducing GHG emissions through energy conservation and renewable energy initiatives; and reducing operational waste and enhancing our use of returnable, recyclable, or renewable packaging

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In March 2022, we acquired the Lingua Franca business, including a collection of Oregon-based luxury wines, a vineyard, and a production facility. This transaction also included the acquisition of a trademark and inventory. The results of operations of Lingua Franca are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Current wording

In June 2024, we acquired the Sea Smoke business, including a California-based luxury wine brand, vineyards, and a production facility. This transaction also included the acquisition of a trademark, inventory, and goodwill. The results of operations of Sea Smoke will be reported in the Wine and Spirits segment and will be included in our consolidated results of operations from the date of acquisition. This acquisition supports our strategic focus on consumer-led premiumization trends and meeting the evolving needs of our consumers.

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In May 2023, we sold the Daleville Facility in connection with management’s decision to exit the craft beer business. The net cash proceeds from the transaction were used primarily for general corporate purposes.

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In May 2023, we sold the Daleville Facility in connection with our decision to exit the craft beer business.

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We have an investment in Canopy, a North American cannabis and CPG company providing medical and adult-use cannabis products, which expands our portfolio into adjacent categories. We expect to convert our Canopy common shares into Exchangeable Shares following the completion of the Canopy Transaction.

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We have an investment in Canopy, a North American cannabis and CPG company providing medical and adult-use cannabis products, which expands our portfolio into adjacent categories.

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For additional information, refer to Note 9.

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In April 2024, we elected to convert our 17.1 million Canopy common shares into Exchangeable Shares on a one-for-one basis. Additionally, in April 2024, we exchanged C$81.2 million of the principal amount of our 2023 Canopy Promissory Note for 9.1 million Exchangeable Shares and forgave all accrued but unpaid interest together with the remaining principal amount of the note. As a result of these transactions, we (i) have 26.3 million Exchangeable Shares and (ii) recognized an $83.3 million net gain based on the fair value of Exchangeable Shares on the date of the conversion and exchange. This net gain is included in income (loss) from unconsolidated investments within our consolidated results of operations for First Quarter 2025. For additional information, refer to Note 7.

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We evaluated the Canopy Equity Method Investment as of May 31, 2023, and determined there was an other-than-temporary impairment. Our conclusion was based on several contributing factors, including: (i) the fair value being less than the carrying value and the uncertainty surrounding Canopy’s stock price recovering in the near-term, (ii) Canopy recorded significant costs in its fourth quarter of fiscal 2023 results designed to align its Canadian cannabis operations and resources in response to continued unfavorable market trends, (iii) the substantial doubt about Canopy’s ability to continue as a going concern, as disclosed by Canopy, and (iv) Canopy’s identification of material misstatements in certain of its previously reported financial results related to sales in its BioSteel reporting unit that were accounted for incorrectly, including the recording of a goodwill impairment during its restated second quarter of fiscal 2023. As a result, the Canopy Equity Method Investment with a carrying value of $266.2 million was written down to its estimated fair value of $142.7 million, resulting in an impairment of $123.5 million. This loss from impairment was included in income (loss) from unconsolidated investments within our consolidated results for Nine Months 2024.

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Canadian cannabis operations and resources in response to continued unfavorable market trends, (iii) the substantial doubt about Canopy’s ability to continue as a going concern, as disclosed by Canopy, and (iv) Canopy’s identification of material misstatements in certain of its previously reported financial results related to sales in its BioSteel Sports Nutrition Inc. reporting unit that were accounted for incorrectly, including the recording of a goodwill impairment during its restated second quarter of fiscal 2023. As a result, the Canopy Equity Method Investment with a carrying value of $266.2 million was written down to its estimated fair value of $142.7 million, resulting in an impairment of $123.5 million. This loss from impairment was included in income (loss) from unconsolidated investments within our consolidated results for First Quarter 2024. We no longer apply the equity method to our investment in Canopy following the April 2024 conversion of our Canopy common shares to Exchangeable Shares.

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In July 2022, we received 29.2 million common shares of Canopy following the exchange of C$100.0 million principal amount of our Canopy Debt Securities. In April 2023, we extended the maturity of the remaining C$100.0 million principal amount of our Canopy Debt Securities by exchanging them for the 2023 Canopy Promissory Note. The fair value of the Canopy Debt Securities was $69.6 million as of February 28, 2023. As of May 31, 2023, we determined that the 2023 Canopy Promissory Note did not have future economic value and, accordingly, the fair value was reduced to zero. On November 1, 2023, the initial tranche of the November 2018 Canopy Warrants expired in accordance with its terms. The remaining tranches of the November 2018 Canopy Warrants were conditioned on the exercise, in full, of the expired warrants. As such, there are no longer any outstanding November 2018 Canopy Warrants.

Current wording

In April 2023, we extended the maturity of the remaining C$100.0 million principal amount of our then-existing Canopy Debt Securities by exchanging them for the 2023 Canopy Promissory Note. The fair value of the Canopy Debt Securities was $69.6 million as of February 28, 2023. As of May 31, 2023, we determined that the 2023 Canopy Promissory Note did not have future economic value and, accordingly, the fair value was reduced to zero.

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For additional information on these divestitures, acquisitions, and investments refer to Notes 4, 5, and 7.

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For additional information on these divestitures and investments refer to Notes 4, 5, and 7.

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•Our results of operations were positively impacted by improvements within the Beer segment driven by a successful execution of cost savings initiatives and 3.4% shipment volume growth.

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•Our results of operations were positively impacted by Canopy-related activities, including (i) no longer recognizing equity losses from Canopy’s results following the conversion of our Canopy common shares to Exchangeable Shares, (ii) an impairment of our then-existing Canopy Equity Method Investment recognized in First Quarter 2024, (iii) a decrease in unrealized net losses from the changes in fair value of our investment in Canopy, and (iv) a net gain on the common shares conversion and 2023 Canopy Promissory Note exchange to Exchangeable Shares in First Quarter 2025, and improvements within the Beer segment driven by 7.6% shipment volume growth and a successful execution of cost savings initiatives.

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•Net sales increased 5%largely due to an increase in Beer net sales driven primarily by shipment volume growth and favorable impact from pricing, partially offset by a decline in Wine and Spirits net sales driven primarily by a decrease in branded shipment volume.

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•Net sales increased 6% largely due to an increase in Beer net sales driven primarily by shipment volume growth and favorable impact from pricing, partially offset by a decline in Wine and Spirits net sales driven primarily by a decrease in branded shipment volume.

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•Operating income increased 7%largely due to the improvements within (i) the Beer segment as shipment volume growth and lower marketing spend outpaced the growth of cost of product sold, driven by the successful execution of cost savings initiatives, and (ii) the Corporate Operations and Other segment from lower Digital Business Acceleration investments as compared to Third Quarter 2023, partially offset by a decline in the Wine and Spirits segment driven by the decrease in organic branded shipment volume.

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•Operating income increased 23%largely due to the improvements within the Beer segment resulting from First Quarter 2025 shipment volume growth, favorable pricing, and lower cost of product sold, driven by the successful execution of cost savings initiatives. The operating income growth from the Beer segment was partially offset by declines in (i) the Wine and Spirits segment driven by higher cost of product sold and the decrease in branded shipment volume and (ii) the Corporate Operations and Other segment from higher compensation and benefits as compared to First Quarter 2024.

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•Net income attributable to CBI anddiluted net income per common share attributable to CBI increased 9%and 10%, respectively, largely due to the items discussed above.

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•Net income attributable to CBI anddiluted net income per common share attributable to CBI increased largely due to the items discussed above and lower provision for income taxes.

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We recognized transaction, integration, and other acquisition-related costs in connection with our investments, acquisitions, and divestitures.

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We recognized costs in connection with our investments, acquisitions, and divestitures.

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We recognized other gains (losses) primarily from (i) recognition of a previously deferred gain upon release of a related indemnity (Nine Months 2024), (ii) a gain recognized on the remeasurement of our previously held equity interests to the acquisition-date fair value (Nine Months 2023), and (iii)decreases in estimated fair values of a contingent liabilities associated with prior period acquisitions (Third Quarter 2023, Nine Months 2023).

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We recognized other gains (losses) primarily from the sale of the Daleville Facility (First Quarter 2024).

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We recognized income (loss) primarily from (i) comparable adjustments to equity in losses from Canopy’s results, (ii) an impairment of our Canopy Equity Method Investment (Nine Months 2024, Nine Months 2023), (iii) unrealized net losses from the changes in fair value of our securities measured at fair value, and (iv) impairments of certain other equity method investments (Third Quarter 2024, Nine Months 2024). For additional information, refer to Notes 4 and 7.

Current wording

We recognized income (loss) primarily from (i) a net gain on conversion and exchange to Exchangeable Shares (First Quarter 2025), (ii) comparable adjustments to equity in losses from Canopy’s results (First Quarter 2024), (iii) an impairment of our Canopy Equity Method Investment (First Quarter 2024), and (iv) unrealized net losses from the changes in fair value of our securities measured at fair value (First Quarter 2024). For additional information, refer to Notes 4 and 7.

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(1)Includes an adjustment to remove volume associated with the Wine Divestiture for the period September 1, 2022, through October 5, 2022.

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(1)Includes an adjustment to remove volumes associated with the Craft Beer Divestitures for the period March 1, 2023, through May 31, 2023.

Previous wording

The increase in Beer net sales is largely due to (i) $67.6 million of shipment volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, and (ii) $22.6 million of favorable impact from pricing in select markets within our Mexican beer portfolio, partially offset by $9.7 million of unfavorable product mix primarily from a shift in package types.

Current wording

The increase in Beer net sales is largely due to (i) $157.4 million of shipment volume growth, which benefited from continued consumer demand, and (ii) $33.4 million of favorable impact from pricing in select markets, partially offset by $16.6 million of unfavorable product mix primarily from a shift in package types.

Previous wording

wine and spirits shipment volume is attributable to our U.S. wholesale market, primarily driven by declines in both the overall wine market and in our lower-end brands. The favorable impact from pricing was driven by price increases, partially offset by lower contractual distributor payments as compared to Nine Months 2023.

Current wording

The decrease in Wine and Spirits net sales is driven by (i) a $23.6 million decrease in branded wine and spirits shipment volume and (ii) $8.1 million of unfavorable product mix, primarily driven by a decline in demand for certain of our mainstream and premium brands and an increase in lower-margin spirits brands, partially offset by $4.3 million from higher contractual distributor payments as compared to First Quarter 2024. The decrease in branded wine and spirits shipment volume is primarily attributable to our U.S. wholesale market, driven by declines in both the overall wine market and in our mainstream and premium wine brands. For First Quarter 2025, the depletions decline outpaced the U.S. Wholesale shipments decline largely driven by challenging U.S. market conditions. We expect U.S. Wholesale shipment volume to align with depletion volume for Fiscal 2025.

Previous wording

The increase in Beer gross profit is primarily due to (i) $215.9 million of shipment volume growth and (ii) the $139.9 million favorable impact from pricing, partially offset by (i) $136.1 million of higher cost of product sold and (ii) $13.1 million of unfavorable product mix. The higher cost of product sold is primarily due to (i) $100.5 million of higher material costs, including malt, glass, aluminum, and starch, driven by inflation and global supply chain constraints, (ii) $32.2 million of higher depreciation resulting from the Mexico Beer Projects, (iii) $13.7 million of costs related to a voluntary product recall of select kegs for quality assurance, and (iv) a $15.0 million increase in brewery costs, including compensation and benefits and IT expenses, partially offset by (i) $23.9 million of decreased transportation costs and (ii) $6.5 million of lower inventory obsolescence as compared to Nine Months 2023. To partially offset the increases in cost of product sold we are executing initiatives that have resulted in approximately $105 million of net cost savings for Nine Months 2024.

Current wording

The increase in Beer gross profit is due to (i) $86.1 million of shipment volume growth, (ii) the $33.4 million favorable impact from pricing, and (iii) $8.9 million of reduced cost of product sold, partially offset by $14.0 million of unfavorable product mix. The reduced cost of product sold is primarily due to (i) $12.5 million of favorable fixed cost absorption related to increased production levels as compared to First Quarter 2024 and (ii) $10.8 million of decreased transportation costs and $9.5 million of lower material costs, including aluminum, glass, and lumber, each driven by efficiency initiatives, partially offset by (i) $7.5 million of foreign currency transactional losses, (ii) a $6.8 million increase in brewery costs, including compensation and benefits and IT expenses, and (iii) $5.0 million of higher depreciation resulting from the Mexico Beer Projects. To partially offset the expected increases in cost of product sold we are executing efficiency initiatives focused largely on logistics and procurement that resulted in nearly $50 million of cost savings for First Quarter 2025.

Previous wording

The decrease in Wine and Spirits gross profit is due to a $16.7 million decrease in organic gross profit and $2.2 million from the Wine Divestiture. The decrease in organic gross profit is attributable to (i) a $25.8 million decrease in branded wine and spirits shipment volume and (ii) $4.8 million of unfavorable product mix led by lower-margin, non-branded net sales, partially offset by $13.6 million of lower cost of product sold. The decrease in cost of product sold was largely attributable to (i) $8.4 million of decreased transportation and warehousing costs, including ocean freight shipping, and (ii) $4.9 million of cost savings initiatives, primarily resulting in lower grape costs, as well as lower materials and packaging costs, driven by our sustainable packaging projects.

Current wording

The decrease in Wine and Spirits gross profit is attributable to (i) $12.9 million of higher cost of product sold, (ii) a $12.1 million decrease in branded wine and spirits shipment volume, and (iii) $5.7 million of unfavorable product mix from lower-margin net sales, partially offset by the $4.3 million favorable impact from higher contractual distributor payments. The increase in cost of product sold was largely attributable to increased raw materials, including grapes, partially offset by decreased transportation and warehousing costs.

Previous wording

Gross profit as a percent of net sales increased to 51.4% for Third Quarter 2024 compared with 50.4% for Third Quarter 2023. This increase was largely due to (i) 55 basis points of rate growth from lower cost of product sold within the Wine and Spirits segment, (ii) a favorable change of approximately 55 basis points in Comparable Adjustments, and (iii) 45 basis points of favorable impact from Beer pricing in select markets, partially offset by approximately 55 basis points of rate decline resulting from unfavorable product mix and lower-margin, non-branded net sales within the Wine and Spirits segment.

Current wording

Gross profit as a percent of net sales increased to 52.7% for First Quarter 2025 compared with 50.0% for First Quarter 2024. This increase was largely due to (i) a favorable change of 215 basis points in Comparable Adjustments, (ii) approximately 60 basis points of favorable impact from Beer pricing in select markets, and (iii) approximately 35 basis points of rate growth from lower cost of product sold within the Beer segment, partially offset by approximately 50 basis points of rate decline resulting from higher cost of product sold within the Wine and Spirits segment.

Previous wording

Selling, general, and administrative expenses as a percent of net sales decreased to 18.4% for Nine Months 2024 as compared with 19.2% for Nine Months 2023. The decrease is largely driven by (i) 80 basis points of rate decline as the increase in Beer net sales exceeded the increase in selling, general, and administrative expenses and (ii) approximately 55 basis points of rate decline from a decrease in the Corporate Operations and Other segment’s selling, general, and administrative expenses, partially offset by an unfavorable change in Comparable Adjustments, contributing approximately 45 basis points of rate growth.

Current wording

Selling, general, and administrative expenses as a percent of net sales decreased to 17.4% for First Quarter 2025 as compared to 19.6% for First Quarter 2024. The decrease is largely driven by(i) approximately 165 basis points of rate decline from Beer as the increase in Beer net sales significantly outpaced the decrease in selling, general, and administrative expenses and (ii) a favorable change in Comparable Adjustments, contributing approximately 90 basis points of rate decline, partially offset by approximately 35 basis points of rate growth from the increase in Corporate Operations and Other selling, general, and administrative expenses.

Previous wording

The increase in Beer operating income is largely attributable to the cost savings initiatives, shipment volume growth within our Mexican beer portfolio, and the favorable pricing impact, partially offset by higher material costs.

Current wording

The increase in Beer operating income is largely attributable to the shipment volume growth, cost savings initiatives, favorable pricing impact, and lower material costs, partially offset by the unfavorable product mix.

Previous wording

The decrease in Wine and Spirits operating income is largely attributable to the decline in branded wine and spirits shipment volume and unfavorable product mix, partially offset by the lower cost of product sold and general and administrative expenses.

Current wording

The decrease in Wine and Spirits operating income is largely attributable to the higher cost of product sold, decline in branded wine and spirits shipment volume, and unfavorable product mix, partially offset by the higher contractual distributor payments and decreased selling, general, and administrative expenses, as described above.

Previous wording

As previously discussed, the Corporate Operations and Other decrease in operating loss is largely due to the lower Digital Business Acceleration investments, partially offset by increased compensation and benefits.

Current wording

As previously discussed, the increase in Corporate Operations and Other operating loss is largely due to the higher compensation and benefits expense as compared to First Quarter 2024.

Previous wording

The provision for income taxes decreased to $130.0 million for Third Quarter 2024 from $131.1 million for Third Quarter 2023. Our effective tax rate for Third Quarter 2024 was 20.0% as compared with 21.5% for Third Quarter 2023. In comparison to prior year, our income taxes were impacted primarily by the effective tax rates applicable to our foreign businesses.

Current wording

The provision for income taxes decreased to $28.0 million for First Quarter 2025 from $91.2 million for First Quarter 2024. Our effective tax rate for First Quarter 2025 was 3.0% as compared with 39.6% for First Quarter 2024. In comparison to prior year, our income taxes were impacted primarily by: