Constellation Brands Inc (STZ) Q4 2018 Earnings Conference Call Transcript

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Constellation Brands Inc. (NYSE: STZ)Q4 2018 Earnings Conference CallMarch 29, 2018, 10:30 a.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Constellation Brands' Fourth Quarter and Full-Year 2018 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. Following the prepared remarks, the call will be opened for your questions. Instructions will be given at that time. If you should require operator assistance at any time, please press "*0". I will now turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations. Please go ahead.

Patty Yahn-Urlaub -- Senior Vice President of Investor Relations

Thanks, Maria. Good morning and welcome to Constellation's year-end fiscal 2018 conference call. I'm here this morning with Rob Sands, our President and Chief Executive Officer, and David Klein, our Chief Financial Officer. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company's website at www.cbrands.com. Please refer to the news release and Constellation's SEC filings for risk factors which may impact forward-looking statements we make on this call.

Before turning the call over to Rob, similar to prior quarters, I would like to ask that we limit everyone to one question per person, which will help us to end our call on schedule. Thanks in advance and now here's Rob.

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Robert Sands -- President and Chief Executive Officer

Thanks, Patty. Good morning and welcome to our year-end call. Fiscal 2018 marked another year of excellent execution and impressive results for Constellation that generated EPS growth of almost 30%. This is the fifth consecutive year that we've achieved industry-leading EPS growth of more than 20%, an accomplishment of which I am very proud.

I believe it's worth reviewing some of the key accomplishments that drove this result, as they illustrate our commitment to sustaining profitable growth and building shareholder value. I'll follow that up with a review of our business performance along with some of the great initiatives we have under way for fiscal 2019.

Throughout the year, we made value-creating portfolio moves that aligned with our premiumization strategy and enabled us to capitalize on U.S. market trends that favor high-end beverage alcohol brands. This included our acquisition of Schrader Cellars, a highly rated portfolio of fine wines sourced from Napa Valley vineyards that sell for $225.00 to $250.00 per bottle to customers on its mailing list, as well as Funky Buddha, a regional craft brewer in South Florida where it is the largest craft brewery by size and volume. Each of these additions boast award-winning, high-end products and excellent growth products.

These activities were complemented by Constellation Ventures' investments, including the Real McCoy, a high-end rum aged in American Oak bourbon barrels, as well as Copper & Kings, a high-end, American craft brandy that is naturally distilled in copper pot stills and matured in Kentucky bourbon barrels. I'm also excited about our investment in Canopy Growth, the largest publicly traded cannabis supplier in the world and a leader in the medical cannabis market in Canada. This investment provides Constellation with a first-mover advantage for a potentially significant emerging consumer opportunity and aligns with our long-term strategy to identify, meet, and stay ahead of evolving consumer trends and market dynamics while maintaining focus on our core total beverage alcohol business.

From an operational perspective, we made planned, strategic investments in our beer business and completed the next expansion phases of our Nava and Obregon breweries, which collectively now provide 31.5 million hectoliters of brewing capacity for our fast-growing beer business. We also fired up furnace No. 4 at our Nava glass plant, which is already showing excellent performance as we begin to optimize its efficiencies.

We recently launched our Fit for Growth initiative, which is a multi-year program designed to prioritize resources across the company in support of our most critical growth opportunities. And we promoted Bill Newlands to the position of President and Chief Operating Officer. In this expanded role, Bill has oversight and accountability for all operating aspects of the company. I look forward to working closely with Bill to execute our growth agenda.

Overall, our strong financial results and record operating cash flow generated in fiscal 2018 created flexibility that enabled value-creating investments to support the ongoing growth of our business and we returned more than $1.4 billion to our shareholders through a combination of significant share repurchases and a sizable dividend increase. Collectively, these accomplishment help STZ remain one of the best-performing stocks in the S&P 500 Index.

Let's move now to the excellent business performance that I just mentioned as a critical component to our success. Our beer business continues to be a powerhouse for growth, with its winning streak of 31 quarters of consecutive growth as the No. 1 brewer and seller of imported beers in the U.S. market. Constellation also remains the No. 1 high-end beer company and growth contributor to the U.S. beer category, outperforming the overall U.S. beer industry and all key competitors.

As we look back at the past year's accomplishments and ahead to fiscal 2019, let's begin our discussion with Corona Extra and Modelo Especial brand families, which drove strong execution and sales increases throughout the past year. Corona Extra achieved record case volumes in fiscal 2018 and has steadily been growing base velocity for five consecutive years. It has gained share every month throughout the past year and it is the only Top 5 beer brand that is in growth mode. And with Hispanics, Corona Extra continues to have the highest brand awareness, certainly signs of a very, very healthy brand. The Corona brand family closed out fiscal 2018 with strong growth momentum supported by strong TV, video, and social media marketing and advertising activities.

Corona Familiar gained distribution following its regional expansion of 12 ounce bottle packages into key states and became the No. 3 high-end share gainer. And Corona Premier prepared to launch nationwide with the first national Corona line extension in more than25 years. We are well-positioned in fiscal 2019 with a great lineup of activities to support the growth momentum of this brand family. Corona Extra kicks off a new sponsorship as the official cerveza of the San Francisco Giants and will become the official import beer of this year's Kentucky Derby.

English and Spanish language national TV campaigns will be launched to support the brand, with this year's increased media investments focused on sports properties. New TV ads featuring Corona Extra and Corona Light together will begin running in advance of the Cinco de Mayo holiday and we will begin launching our new TV ad campaigns in support of the Premier and Familiar launches beginning next month.

Now moving to Casa Modelo, this trio of brands, which includes Modelo Especial, Negra, and Chelada, has been an amazing growth story, quadrupling to more than 110 million cases in 10 years, making this brand family the No. 1 source of growth in the entire U.S. beer category for the past decade.

In fiscal 2018, Modelo Especial alone achieved the 100 million case milestone and grew depletions 17%. Modelo Especial was the fastest growing draft in the on-premise channel and the No. 2 share gainer in the off-premise last year. It's now a Top 5 beer brand in 11 major U.S. markets, including New York, D.C., and Denver. And even more impressive, Modelo Especial is now the No. 1 beer in the State of California, fueled by its No. 1 position in L.A. and San Francisco. Last year, Modelo Especial had the highest increase in household penetration in the entire U.S. beer category.

Casa Modelo has plenty of upside from ongoing distribution expansion opportunities in the coming year. Dedicated media spend will increase by more than 20% in fiscal 2019, which will be heavily weighted to high-profile programming on ESPN and other entertainment networks, as well as live sports property, such as the NFL and the NBA. And as of January 1st, Modelo became the official beer for the UFC, the Ultimate Fighting Championship, which is one of the fastest growing sports in America.

Last year, the Modelo Chelada family grew almost 40% with the launch of Tamarindo Picante, which became the No. 1 single-serve item in the U.S. beer market and propelled the Chelada family to greater than 30% market share of the Chelada category. Modelo Chelada Especial was also awarded the prestigious Nielson's Breakthrough Innovation Award of 2017, a feat that only 18 brands achieved from a pool of more than 4,500 new CPG items.

Now, as you are aware, the bench strength of our beer portfolio goes deeper than our biggest brands. In fiscal 2018, Pacifico was the second fastest growing major beer brand in the U.S. beer category and a Top 15 share gainer and we believe it has the potential to be the next big national brand in our beer business. In fiscal 2019, we are executing a national launch of the Pacifico 12-pack can to build on the success of the 24 ounce SKU. The 12-pack can format will be a big part of Pacifico's first ever national Cinco de Mayo retail program and we are launching our first ever national TV campaign and our largest retail programs in the history of this brand. As such, you'll see Pacifico on high-profile programs like The Walking Dead, as well as NBA, NHL, Major League Baseball, and college football, and Pacifico will once again be the official beer sponsor of the Burton U.S. Open of Snowboarding as well as the Summer X Games, two of the largest and best known action sports events in this country.

In addition to Corona Premier and Familiar, I am also very excited about the new product lineup we have planned for 2019. We are introducing Western Standard, a barrel-finished, easy drinking lager that will be available in three test markets this summer at a high-end price point. We are leveraging the equity and authenticity of our high-end, small batch High West whiskey brand and building off trends of craft spirits and barrel-aged beverages which we are seeing in the wine and spirits space. We believe that this is the trend for the next American beer, sessionability yet flavorful, another segment we are excited about in the ABA space. This is a growing market opportunity and is incremental to the beer category.

SVEDKA spiked premium seltzer will be introduced in three flavors and is made from natural ingredients and contains no artificial flavors. At 100 calories, it is targeted at the female consumer who is looking for better for you light options that fit an attractive and active lifestyle. We plan to begin test marketing this summer. We will also begin test marketing Corona Refresca, a premium spiked refresher in two tropical flavors that are very, very refreshing.

Our craft and specialty portfolio continues to stabilize. Last fall we launched Ballast Point Fathom IPA and recently began a national rollout of Fathom IPA draft. This new brand is already the third best-selling craft brand in our portfolio. Throughout fiscal 2019, we plan to continue our Ballast Point distributor transition to the Gold Network, drive focus around and across our core brands, deliver innovation, and leverage our new tasting rooms to build stronger local brand presence. Funky Buddha will continue to expand distribution in select new markets and we have a series of new product launches planned throughout the year.

From a beer operations perspective, I had mentioned earlier that our current Nava and Obregon expansion projects have been completed as planned. As we evaluated our plans for fiscal 2019, including the future growth prospects of our beer portfolio, it became clear that we would need to expand capacity beyond what we have already planned due to the industry-leading growth being generated by the business. As such, we plan to increase our Nava footprint to 30 million hectoliters and expand Obregon by an additional 5 million hectoliters, while also continuing the buildout of Mexicali to 5 million hectoliters. Collectively, these projects will provide about 44 million hectoliters of capacity by fiscal 2023.

We are in the enviable position of being the growth leader in the U.S. beer industry and these investments represent smart usage of our cash. David will discuss the magnitude and timing of these capital investments in just a few minutes. Overall, I'm excited about the growth prospects for our beer business in fiscal 2019. As you can see, we have tremendous opportunity to grow the business through enhanced distribution, excellent execution opportunities, and consumer-driven innovation across the portfolio. As a result, we are targeting beer business net sales and operating income growth in the 9% to 11% range in the coming year.

And now I would like to focus on the operational results for our wine and spirits business, which achieved significant margin improvement for the year while gaining market share in the U.S. wine category. These results demonstrate that our wine and spirits premiumization strategy is working. Our brand investment strategy is driving positive mix and margin enhancement and we are winning in the marketplace, as evidenced by our market share gains. These successes, combined with our operational initiatives, are contributing to operating leverage in the P&L.

These results were primarily driven by our fast-growing higher margin focus brands, which grew depletions almost 7% for the year. Many of these focus brands achieved significant milestones and accomplishments last year. Several of our focus brands received Impact 2017 Hot Brand awards, including Meiomi, Black Box, Ruffino, Kim Crawford, and Nobilo. Our products were also called out in the Beverage Information Group 2017 Awards where five of our brands achieved Fast Track Status, recognizing their impressive growth, including Black Box, Kim Crawford, Meiomi, Nobilo, and The Prisoner.

14 of our brands were named Rising Stars and seven listed as Established Growth brands. Casa Noble took top spot in multiple tequila categories in Cigar & Spirits' The Best of 2017, while Whisky Advocate named High West Campfire one of the Top 20 whiskeys of 2017.

Now, from an operational perspective, we have improved our cost of goods sold management capabilities. We are using enhanced consumer insights to ensure that we are spending our COGS dollars on product attributes that are valued by consumers. We are also driving asset utilization to improve ROIC by getting the right fruit off the right vineyards for each brand, including international sourcing. We have improved yield as a result of process optimization and value engineering throughout the entirety of the production process and we have engaged in packaging simplification and optimized our production footprint.

From a strategic perspective, in fiscal 2019 we are focused on delivering against select key objectives. We will continue to execute a steady evolution to the high-end of the U.S. wine and spirits category by capturing growth at higher price points to achieve mix and margin benefits, particularly at the greater than $11.00 price point at retail. This includes driving growth from our focus brands, which grew almost seven times the rate of the entire portfolio last year and represents approximately 70% of the profit of the wine and spirits business.

We have plans to accelerate our consumer-led innovation and brand-building efforts. As such, we are focusing on capitalizing on hot trend opportunities, like rose, creating higher price points with cross-category innovation, and developing new brands, like Deranged, which is a red blend that retails for $100.00 per bottle. It's actually one of my personal new favorites. We are excited about the innovation brands that we have currently launched and are planning to launch this coming year, including Seven Moons, SVEDKA Blue Raspberry Vodka, Cooper & Thief, especially the Sauvignon Blanc aged in Casa Noble tequila barrels. And Black Box Spirits, including whiskey, vodka, and tequila, will be introduced in a phased rollout, beginning this quarter.

These collective efforts will be supported by impactful marketing campaigns to strengthen and build new and existing brands. We will continue to evolve our three-tier, e-commerce TBA strategy, as well as our direct-to-consumer initiative, as we clear plans to drive growth from these channels. And we have a long runway to continue to improve our operational capabilities in forecasting, asset utilization, flexibility, and through-put. Overall, we will continue to optimize our route-to-market strategy, revenue management, sales enablement, and operational process.

As I mentioned last quarter, while we have seen a slowdown in the U.S. wine industry, it has stabilized and remains healthy overall, with trends that continue to exceed U.S. CPG category growth. In addition, our SKU rationalization efforts are creating a headwind, as we continue to carefully rationalize a subset of our portfolio of tail brands to simplify and premiumize the overall portfolio. Ultimately, we are committed to growing our wine and spirits businesses ahead of the U.S. wine and spirits industry while targeting margin expansion from ongoing price mix benefits and cost of goods activities.

In closing, it has certainly been another exciting year at Constellation. Our achievements are many and have driven a year of strong, strong financial, commercial, and operational performance. In 2018, we deliver industry-leading market results from our beer business while continuing to enhance our operational platform in Mexico to support the growth of our iconic Mexican beer brands. Within our wine and spirits businesses, we maintain our focus on premiumization, innovation, and brand-building, which drove enhanced margins and wine market share gains. We are very, very proud to have delivered another rewarding year of value to our shareholders and I am pleased that our results can support a significant dividend increase and an enhancement to our dividend payout ratio in the coming year.

With all of that, I would now like to turn the call over to David, who will review our financial results for fiscal 2018 and provide our outlook for fiscal 2019.

David Klein -- Chief Financial Officer

Thanks, Rob, and good morning, everyone. Fiscal '18 was another tremendous year as we continued to generate top-tier growth in the CPG space. We generated over $7.5 billion of net sales and 7% organic net sales growth. We expanded operating margins in both businesses and improved our consolidated comparable basis operating margin by 270 basis points. We increased comparable basis EBIT by 13%. We increased comparable basis diluted EPS by 29%, which follows the 24% EPS growth we generated in fiscal '17. And we produced over $1.9 billion of operating cash flow, which is an increase of 14%.

The strong earnings and operating cash flow growth provided us with significant financial flexibility as we continue to make capital investments in our Mexican beer operations, return cash to shareholders with more than $1 billion in stock repurchases and $400 million of dividend payments, while making investments in Canopy Growth and brands like Schrader and Funky Buddha. The stock repurchases represent 4.8 million shares at an average price of $216.00. Approximately 75% of the repurchases occurred during the fourth quarter as we believed the benefits of U.S. tax reform and our top-line growth prospects were not appropriately being appreciated by the market. Our net debt to comparable basis EBITDA ratio finished at 3.6 times versus 3.7 times at the end of fiscal '17.

We expect fiscal '19 to be another year of strong financial performance, as we are targeting healthy net sales, EBIT, comparable basis diluted EPS, and operating cash flow growth, while we continue to invest in our Mexican beer operations, our brands, and in other areas in order to capture future growth opportunities. In addition, we're increasing our dividend by more than 40% and our dividend payout ratio to 30% while we remain committed to our 3.5 times leverage ratio target.

Let's look at fiscal '18 performance in more detail, where I'll generally focus on comparable basis financial results, starting with beer. Net sales grew 10%, primarily due to volume growth of 9% and favorable pricing. Depletion growth for the year came in at 10%. Beer operating margin increased 320 basis points to 39.5%. We're extremely pleased with this operating margin performance, which we believe is best in class for North American brewing. The margin increase was driven primarily by lower COGS and favorable pricing. The lower COGS reflect strong operational performance, driven by glass and material sourcing benefits, foreign currency favorability, and supply independence from ABI. These benefits were partially offset by a $54 million increase in depreciation expense, which totaled $168 million for fiscal '18.

For wine and spirits, excluding the impact of Canadian wine business divestiture, net sales increased by 5%. This includes 3% organic growth, driven primarily by favorable product mix partially offset by lower volumes, along with the acquisition benefits from the Charles Smith, High West, and Prisoner brands. Total U.S. depletions grew 1% for the year, while our focus brand portfolio posted 7% depletion growth. Wine and spirits operating margin increased 160 basis points to 27.4%. This improvement primarily reflects mix benefits from the portfolio premiumization efforts, including the Canadian wine business divestiture, partially offset by marketing investments and higher COGS.

As a reminder, as part of our premiumization efforts, we have been rationalizing lower margin value brand SKUs. These actions impacted wine and spirits revenue growth by almost 100 basis points for fiscal '18, while improving operating margin and ROIC.

Interest expense for the year decreased slightly to $332 million as the benefit of lower average interest rates was mostly offset by higher average borrowings. Our comparable basis effective tax rate for the year came in at 19% versus 26.8% last year. This reflects an increased benefit from lower taxes on foreign earnings and the adoption of ASU 2016-09, which requires excess tax benefits from stock-based payment awards to be recognized in the income statement. The fiscal '18 rate also benefited from the new 21% U.S. federal statutory rate for the last two months of the fiscal year.

Now let's review Q4 results. Comparable basis diluted EPS came in at $1.90, up 28%. Beer net sales increased 12%, primarily due to volume growth of 10% and favorable pricing. Beer operating margin remained steady at 38% as pricing, along with operational and foreign currency benefits, were mostly offset by higher SG&A, including increased marketing spend for the quarter. Wine and spirits organic net sales increased 8%. This primarily reflects mix benefits driven largely by strong sales of the Meiomi wine brand, which experienced tight supply in Q4 last year as strong consumer demand outpaced expectations. Wine and spirits operating margin increased 80 basis points to 27.4% as benefits of favorable mix were partially offset by higher COGS and marketing investments. The higher COGS primarily reflect the impact of lower volumes for the quarter and the overlap of certain inventory cost benefits in Q4 fiscal '17.

In Q4, we recognized an additional $236 million pre-tax gain from the change in fair value of the Canopy investment and warrants, bringing the total pre-tax gain on this investment to $453 million. We recorded a net tax benefit of $363 million as a result of U.S. tax reform, which is comprised of a benefit from a reduction of our net deferred tax liabilities, partially offset by a one-time transition tax related to unremitted earnings of foreign subsidiaries. And we also wrote down $19 million of bulk wine inventory due to smoke damage sustained from the California wildfires. We are pursuing insurance reimbursements for this loss. These items were excluded from our comparable basis financial results.

Moving to fiscal '18 free cash flow, which we define as net cash provided by operating activities less CAPEX, we generated $874 million compared to $789 million last year. Operating cash flow totaled $1.9 billion, up 14%, primarily driven by our earnings growth. And CAPEX totaled $1.1 billion, which was 17% above last year's spend. The CAPEX came in below our previous expectations due to timing.

Moving to our full-year fiscal '19 P&L and free cash flow outlook. For fiscal '19, we expect to leverage our ongoing portfolio premiumization efforts and execute the marketplace initiatives outlined by Rob to deliver another year of strong financial performance, as we are projecting our comparable basis diluted EPS to be in the range of $9.40 to $9.70 per share. The midpoint of this guidance has us growing EPS by approximately 10%.

Our beer business is targeting net sales and operating income growth in the range of 9% to 11%. Our projections include 1% to 2% of anticipated pricing benefit for our Mexican portfolio. In fiscal '19, we expect to see gross margin improvement primarily from product pricing, as benefits from glass sourcing initiatives and operational efficiencies are expected to be offset by increased depreciation. Looking closer at depreciation expense for the beer segment, it totaled $168 million in fiscal '18. We expect that to increase by approximately 30% in fiscal '19.

We expect gross margin benefits to be mostly offset by incremental marketing investments in support of our innovation and other gross initiatives. These investments include $35 million for the national launch of Corona Premier, as well as a regional expansion of the 12 ounce format of Corona Familiar. We are also rolling out our first ever national advertising for Pacifico to drive awareness across the U.S. and supporting other programs, like the Modelo Especial UFC sponsorship. The additional marketing spend in fiscal '19 is expected to be weighted toward the first half of the year as we prepare for the upcoming Cinco de Mayo holiday and the summer selling season.

Beer marketing as a percent of revenue finished fiscal '18 at approximately 9% and the additional marketing spend that I outlined for fiscal '19 could move that percentage up by 50 to 100 basis point.

For the wine and spirits business for fiscal '19, we expect net sales and operating income growth of 2% to 4%. For sales, we're targeting low single digit volume growth and continued mix benefits from our premiumization efforts. We expect mix benefits and COGS productivity enhancements to be mostly offset by some cost increases, including higher grape and transportation costs, and technology-focused SG&A investments which will create operating efficiencies as we go forward.

I would like to remind everyone, from a first quarter standpoint, that in Q1 fiscal '18, wine and spirits EBIT grew 22% and U.S. shipment volume significantly outpaced depletions. This was driven by replenishment of Meiomi supply, which was strained coming out of Q4 fiscal '17. As a result, our Q1 fiscal '19 wine and spirits EBIT could be down 10% to 15%, with sales down low to mid-single digits. This first quarter was contemplated when we set our guidance of 2% to 4% growth on the top-line and bottom-line in our wine and spirits business.

Shifting back to the full-year fiscal '19, to be clear, we are planning to expand operating margins in both business segments. However, we expect the deltas between sales and operating income growth to be contained within the ranges provided. As I mentioned at the recent CAGNY Investor Conference, we've begun a multi-year program to make us Fit for Growth, whereby we will reengineer our business processes and implement a companywide ERP platform to create better digital connectivity with our consumers and our customers.

For fiscal '19, in our corporate segment, we're planning approximately $20 million of incremental spend related to digital enablement activities, like the ERP platform I just mentioned, and e-commerce initiatives, as well as investments in personnel and resources to build brands and open new markets in support of our cannabis investment. These initiatives should help us stay ahead of trends to meet the needs of the perpetually evolving consumer.

Let's transition to our tax rate, where we are pleased with the overall net benefit resulting from U.S. tax reform, which will primarily be reinvested to support the long-term growth of our business. We expect our tax rate to approximate 19%, which is in line with our new 18% to 20% medium-term effective tax rate. As a reminder, we were targeting a low to mid-20% tax rate prior to tax reform.

While the year-over-year tax rate is expected to be flat, fiscal '19 reflects the anticipated benefit from the new 21% U.S. federal statutory rate, primarily offset by an increase in our effective rate on foreign earnings which will occur due to the adoption of ASU 2016-16. Under this accounting change, we will record a deferred tax asset at the beginning of fiscal '19 for the future tax amortization of certain intangible assets. As a result of this amortization, we expect our cash tax rate to run at least 700 basis points lower than our effective tax rate for the foreseeable future. For fiscal '19, our tax payments are also expected to be reduced by prior year refunds. As a result, we expect our fiscal '19 cash tax rate to be almost 10 percentage points below our effective tax rate.

Interest expense is expected to be in the range of $355 million to $365 million and weighted average diluted shares outstanding are targeted at $197 million. For clarity, our guidance assumes no share repurchases during fiscal '19. I would also note that our comparable basis guidance excludes comparable adjustments which are detailed in the release.

We expect fiscal '19 free cash flow to be in the range of $1.2 billion to $1.3 billion, which reflects operating cash flow in the range of $2.35 billion to $2.55 billion and CAPEX of $1.15 billion to $1.25 billion. This includes approximately $900 million of CAPEX for our Mexican beer operation expansion, including investments in Obregon, Mexicali, Nava, and a fifth glass furnace. We expect to finish fiscal '19 with approximately 34 million hectoliters of brewing capacity.

At this point, I would like to highlight ASU 2014-09, the new revenue recognition accounting standard, which was effective for Constellation at the beginning of fiscal '19. Under the new guidance, we will recognize certain sales incentives earlier than we have historically. This change will shift net sales recognition between our fiscal quarters but is not expected to have a material impact on full-year net sales. We will recast full-year fiscal '17 and fiscal '18, along with fiscal '18 quarters, and provide this information in connection with our first quarter fiscal '19 earnings release.

In closing, we believe we're well-positioned to continue to deliver best in class top-line growth over the long-term. Our fiscal '18 results, along with the growth-focused investments we are making while we project strong fiscal performance for FY '19, demonstrates our commitments to create shareholder value through sustainable and profitable net sales growth.

And with that, Rob and I are happy to take your questions.

Questions and Answers:

Operator

Thank you. The floor is now open for questions. At this time, if you have a question, please press "*1" on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing "#". We do ask that you please limit yourself to one question.

Our first question comes from the line of Dara Mohsenian of Morgan Stanley.

Dara Mohsenian -- Morgan Stanley -- Analyst

Hey, guys. On the beer top-line front, your beer portfolio market share accelerated in Q4 within a weaker category. So any highlights on what drove the market share momentum and does that give you visibility as you look out to fiscal 2019 that you can hit your volume goals even if the industry softens further? And also can you just tease out specifically the net impact you're expecting from innovation on beer volume in fiscal 2019 guidance and a review of how the Familiar expansion and Premier launch are trending in the market so far in March?

Robert Sands -- President and Chief Executive Officer

Yeah, Dara. I'll comment on it all. I mean, first of all, yes. The fundamental answer to your question is yes. I think that our performance in the fourth quarter gives us a significant amount of confidence going into the first quarter in the fiscal year regardless of what's happening in the beer category in general. In fact, I don't really think that the two are connected, to the extent that we're looking at the beer category x Constellation's beer business. So I don't think that there's that kind of interaction, in that the beer category exclusive of Constellation really has much to do with how Constellation's beer brands are performing or will perform in the future. So we feel pretty good about where we're going. And if the beer category softens further, it just probably means that we're going to have larger market share gains as we go into this year.

And then new products. They are contributing to our growth this year. Our new products are performing, I would say, extremely well. I'm talking about Premier and Familiar. And when I say performing well, reorder rates are very strong and by all indications it's looking like they're going to be extremely good introductions and therefore we're real optimistic. It's probably providing 200 to 300 basis points of our growth in our fiscal 2019.

Dara Mohsenian -- Morgan Stanley -- Analyst

Great. Thanks.

Operator

Our next question comes from the line of Caroline Levy of Macquarie.

Robert Sands -- President and Chief Executive Officer

Hi, Caroline.

Caroline Levy -- Macquarie Research -- Analyst

Good morning. Thank you and what a great year. Wow. As we move forward, you're adding a lot more capacity than you originally planned for very good reasons. Do you think that that's the way this is going to continue? That each year, where initially we thought there might be a falloff in CAPEX in the outer years, if you keep up a sort of close to double digit top-line growth rate, will you continue to add capacity as this general rate?

Robert Sands -- President and Chief Executive Officer

Well, we're planning out quite a number of years. So I think the answer to your question is no. We're not going to continue to simply add capacity like this every year but as we get out four or five years, if the growth continued to be, I'd say, outsized, we will have to add capacity at some point in the future. But I think that what we're doing now pretty much covers us for a significant period of time. So I don't think that you should be expecting more capacity projects in the near future. I think this takes us up to about 44 million hectoliters of capacity, which should clearly get us to where we need to be through 2023. So, no, we're not going to be adding capacity at this rate in the near future.

Operator

Our next question comes from the line of Lauren Lederman of Barclays.

Lauren Lederman -- Barclays -- Analyst

Morning. I was curious if you could talk a little bit more actually about Fit for Growth. So you've mentioned it in the context of ERP systems, but I guess other investments that are necessary to kind of go after the cost savings and any kind of quantification you could give and timeline for what you're expecting to be able to get out of Fit for Growth and where those dollars are expected to go? And then just one follow-up was, Rob, you said 200 to 300 basis points of growth coming from Premier and Familiar. I'm just assuming that's a gross number, that's not net of assumed cannibalization.

David Klein -- Chief Financial Officer

So I'll take Fit for Growth and also cover up on the cannibalization point. So from a Fit for Growth standpoint, Lauren, we're doing this program because we think that there are ways for us to get more efficient as a company by reengineering our business processes. We expect that the savings, which at this point we're not ready to quantify publicly, the savings we would expect that we reinvest in growth initiatives like the initiatives that we talked about this year, liking building a better digital connectivity with our consumers, with our customers, with our retailers, investing in creating and marketing brands and capabilities in the cannabis space, as well as looking at different ways to get our products to market from a DTC standpoint.

These sorts of investments we want to make in our business and we feel that we can mine our current P&L to fund them and that's really the point of the Fit for Growth program. We're really in the early stages of scoping out the ERP program and the process redesign work so you'll hear more about that over the coming months.

And then in terms of overall growth in the portfolio, I think the way to think about it, there are two ways to look at it, I suppose. One is we expect our base business, net sales in beer, to grow high single digits. And so any difference between that base growth and the NPD, so Premier and Familiar, is -- so the difference between the growth in our base business in our guidance is explained by Premier and Familiar. And so I would say that the 200 to 300 basis points is probably exclusive of cannibalization.

Lauren Lederman -- Barclays -- Analyst

Okay. Great. Thank you so much.

Operator

Our next question comes from the line of Vivian Azer of Cowen.

Vivian Azer -- Cowen & Company

Thank you. Good morning.

David Klein -- Chief Financial Officer

Hey, Viv.

Vivian Azer -- Cowen & Company

So I wanted to double back on the beer category dynamics. Clearly you guys are floating above the fray in terms of the competitive activity at mainstream price points. But we are hearing from the trade press about heightened competitive activity at the high end as well, given some of the capacity issues that are happening in craft. So a two-part question, please. No. 1, I'd love your thoughts on what you're seeing in the craft category. And then No. 2, how does that inform your thinking around price realization? Thank you.

Robert Sands -- President and Chief Executive Officer

So, Vivian, I'd say a couple things. No. 1, I think that unfortunately we talk about these categories generically. And I think that even within these categories, there are subcategories and there are things that are going on that have really no impact whatsoever on other elements of what you're referring to as a category, like the high end. So first of all, if you looked at various definitions of the craft category, what you'll see is, on a total category basis, that pricing in craft is pretty much consistent with the whole high-end or everything else for that matter.

But within craft, what you have seen are anecdotal reports of various craft beer companies reducing prices and introducing cheaper, larger pack sizes, basically to do anything to try to stem their declines. These are specific companies but it's not really across the whole category effecting pricing in the craft category. That's really more a function of the fragmentation of craft and the competition in craft with the hugely expanding number of craft breweries and the trend toward hyper-localization and fragmentation for that matter. But in general, craft pricing is pretty stable at about plus 1.5%.

Probably more importantly, the anecdotal pricing you're talking about has zero interaction with us. It does not affect us whatsoever. If a particular craft brand, because they're falling out of bed drops their price to $9.99 or introduces a 15-pack at some cheap price, it matters not to us whatsoever and really doesn't affect the parts of the business that we play in. so most importantly, I guess to get directly to the point, we don't see anything that's going on across the beer industry, or any category for that matter, that would cause us to do anything differently than our normal 1% to 2% price increase to cover typical inflation in the business. So we feel good about that. We don't see anything that's occurring that we think would jeopardize that.

Operator

Our next question comes from the line of Bonnie Herzog of Wells Fargo.

Robert Sands -- President and Chief Executive Officer

Hi, Bonnie.

Bonnie Herzog -- Wells Fargo Securities -- Analyst

Thank you. Hi. So I was hoping you guys could drill down a little bit more on your Q4 beer margins, which ended up better than I think you guys had been expecting based on some comments you made a few months ago. So I just wanted to understand the key drivers of that. And then, David, you mentioned you expect beer margin expansion in FY '19 but your guidance really doesn't call for much. So touch on that please and the factors you expect that could limit beer margin upside. And then I'd just love some thoughts on long-term expectations for beer margins. What's realistic? Thank you.

David Klein -- Chief Financial Officer

Yeah. So in terms of Q4, the things that were really a little different from maybe where we expected it to land was performance, in particular, continued really strong operating performance at Obregon from a cost perspective. We also had some FX benefits that we got in the fourth quarter that's maybe more of a timing benefit than anything else because some of the peso strengthening that we were seeing coming into the quarter that we were concerned about actually ended up getting captured in inventory at year end. So it's just a timing difference.

In terms of the margin guidance, we expect that, depending upon where you pick your net sales number and where you pick your operating margin number in that 9% to 11% range, you can see that there's some amount, although as you say, limited amount of margin expansion planned in our numbers. but that's inclusive of the investment that we're making in the launch of Premier and Familiar, which, as we said, would take our marketing spend as a percent of net sales up by between 50 and 100 basis points for the fiscal year.

I would say that over time, Bonnie, I probably would say that we'll continue to drive as much operating margin as we can out of the business. We like the trends we're seeing in gross margin. We think we can get a little sharper over time from an SG&A standpoint. But we'll continue to invest in our brands from a marketing standpoint. So I would say that we think that there's some amount of margin expansion to be had over the next couple of years but I would put it in a reasonably small bucket as we are really going to try to continue to drive the top-line of the business.

And, for me, that's the thing I think that's missed a little bit by our story is the power of the top-line growth of our beer business, where last year we grew 10%, this year we have a range to grow 9% to 11%. We're setting ourselves up to continue to grow at that rate for the foreseeable future. And so I guess we want to make sure we're appropriately investing in our brands as opposed to just dropping dollars to the bottom line.

Bonnie Herzog -- Wells Fargo Securities -- Analyst

Alright. Thank you.

Operator

Our next question comes from the line of Andrew Teixeira of JP Morgan.

Andrea Teixeira -- JP Morgan -- Analyst

Hi, thank you for taking my question and congrats. I just wanted to follow up on your guidance for the funding for growth, if you will. This new program. For the expenditures that you are hoping for the ERP, are they included in your guidance within the range of margins that you have on the ongoing margin guidance? And also if you could comment a little bit on wine. If you kind of normalize after you cycle this impact on the first quarter, what is the kind of growth that you're seeing on depletions? I understand, obviously, the focus is on the focus brands but if you look at excluding this effect, we are looking at obviously a much bigger, if you can do the math, a much better improvement after this effect in the first quarter. Thank you.

David Klein -- Chief Financial Officer

Yeah. So on the Fit for Growth and ERP question, that's included in our guidance. Again, that's part of why you see costs, our corporate costs, going up.

In terms of wine growth, Rob mentioned that we had seen a bit of a slowdown from where we were over, say, the last 5 to 10 years in the wine business. We saw a bit of a slowdown in calendar year '17. We, however, are also seeing a bit of a bifurcation within the wine business where, and Bill talked about this at the CAGNY conference, where above that $11.00 price point, which is somewhat arbitrary, but above that $11.00 price point, we're seeing market growth in the range of 13% versus a 1% growth rate for the brands below the $11.00 price point. And we believe that you see this capability in our portfolio when you see the growth that we have in our focus brands versus the growth in the rest of the market.

And so we remain quite bullish on our focus brands while we continue to work the SKU rationalization sorts of activities that we've talked about in the past, which, as Rob mentioned, is creating a drag on the business of about 100 basis points in FY '18 and will have, included in our guidance, some amount of drag, maybe in the 50 basis points range, during FY '19.

Andrea Teixeira -- JP Morgan -- Analyst

Thank you, David. Just a follow-up on FX. What is embedded in your guidance? In terms of you always hedged part of your COGS. Can you update us on the range of FX that you disclosed before?

David Klein -- Chief Financial Officer

Yeah. I think from an FX standpoint, at this point in the year we're probably around 60% hedged. Our biggest exposure, as you know, is to the peso. And the peso has been fairly stable recently, although we expect there could be some volatility in the peso as we go through the public discussions around NAFTA and the elections in Mexico.

Andrea Teixeira -- JP Morgan -- Analyst

And you're ready to disclose the amount that you're hedged at?

David Klein -- Chief Financial Officer

Yeah. Again, I think we're roughly in that 60% hedged range as we go into the year.

Andrea Teixeira -- JP Morgan -- Analyst

Okay. Great. Thank you.

Operator

Our next question comes from the line of Stephen Powers of Deutsche Bank.

Stephen Powers -- Deutsche Bank -- Analyst

Great. Good morning, guys.

Robert Sands -- President and Chief Executive Officer

Good morning.

Stephen Powers -- Deutsche Bank -- Analyst

I guess just given how important increased distribution is to the beer growth algorithm, can you talk about your line of sight to incremental points of distribution entering fiscal '19, across all the brand families inclusive of Premier and Familiar but also what you expect on Modelo, Pacifico, and craft? And I guess as you think about that, I'm curious about two things. The first, what portion of the gains embedded in your outlook do you feel at this point is more or less locked in versus what you need to go out and incrementally win over the course of the year? And then second, just for context, as your conversations with distributors and retailers have taken shape, is there any way to frame how this year's setup compares to what you might have saw entering fiscal '18, that would be great context. Thanks.

Robert Sands -- President and Chief Executive Officer

So our line of sight to getting more distribution is very good, in that we have definitive distribution gaps in big parts of our portfolio and therefore we have a lot of upside. Especially when you look at the Modelo Especial family and when you look at brands like Pacifico, there continue to be huge upsides to be gained in distribution. And our organizations are all tasked and incentivized against getting that distribution. So I'd say we have very good line of sight into getting the distribution. And therefore it's just another factor that goes into the confidence that we have in the business continuing along the same lines that it has and in the guidance that we've given. So there's really no magic to any of that. It's all about sales execution and where we are in terms of what the gaps are. And our people are acutely aware of where the gaps are and they will be continuing to drive against closing those gaps. So I'd say a high line of sight.

David Klein -- Chief Financial Officer

And I would also say, Stephen, that we believe that, we've said before, 50% of our growth is sourced from distribution. We think that we can continue that for the next several years. Meaning that we have, as Rob said, line of sight into distribution opportunities that allow us to continue on that growth trajectory for the next few years.

Stephen Powers -- Deutsche Bank -- Analyst

Okay. That's great. Thank you.

Operator

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

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, everyone. I wanted to follow up, I guess, on Caroline's question earlier around CAPEX. And forgive me if I might have missed this. But, David, could you just kind of give us some sense of, beyond '19, how CAPEX sort of phases with the capacity expansion and maybe just remind us kind of where you sit now in terms of what maintenance CAPEX levels are and sort of what the growth CAPEX is going to be over the next couple of years?

David Klein -- Chief Financial Officer

So, Bryan, the way I think about it, and when we get out a couple years in capital, we're all kind of making the numbers up, but when I think about it, we know that we've committed to, after FY '19, capital expenditures in Mexico that are in the $1.1 billion to $1.3 billion range. And we know that that all needs to be completed by FY '23. That's likely to be front-end loaded in that time period because we're building out capacity. In addition to that, in the rest of our business, just broadly speaking, we spent about $200 million in CAPEX. That's the corporate initiatives, wine and spirits. And then just as a placeholder, we've been thinking it's $100 million to $200 million of spend in our beer business on an ongoing basis for maintenance, as well as for value engineering and return-generating investments in our production assets outside of simple capacity expansion. So I think that kind of frames up where we see CAPEX beyond FY '19.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

So that would mean, I guess, that 2020 CAPEX might look similar to fiscal '19 and then it begins to kind of taper from there. Would that be a good way to kind of think about modeling it?

David Klein -- Chief Financial Officer

Yeah, I think that's fair.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from the line of Tim Ramey of Pivotal Research

Timothy Ramey -- Pivotal Research Group -- Analyst

Thanks so much. Congratulations. I'm interested in your comment on the $19 million write down of smoke damage to bulk wine. Are you seeing that more broadly in the industry and does that firm up the bulk wine market? Does that wine, since it's written down, still exist for the bulk wine market or is it essentially condemned?

Robert Sands -- President and Chief Executive Officer

So I'd say, interestingly enough, we're probably the first company to talk about this. I believe that there's probably a significant amount of smoke tainted or damaged bulk wine out there in the tanks in the Valley. I think that it's not something that everybody is necessarily telegraphing. I don't know how it's going to effect the bulk wine market other than I don't believe that will have any effect on us whatsoever. And we're certainly not going to use any of the smoke-tainted bulk wine or buy any. And I think that, from what I hear, a few others, some of the most premium guys who are now realizing that there's some smoke-tainted wine out there, I've heard of a couple who are going to skip the vintage. But this isn't going to have any impact on us or our ability to meet our guidance.

Our wine business is very strong. We've got some fantastic brands that are just really blowing the socks off a lot of the industry, things like Meiomi, Kim Crawford, and Prisoner. We've got some unbelievable innovation out there, like Deranged, which is our new high-end wine blend out of The Prisoner Wine Company part of our business. We've really been leaders in driving the new sort of barrel-aged spirits or bourbon barrel-aged wines, with our Robert Mondavi Private Selection, which is in significant growth, and Cooper & Thief, which I think is going to turn out to be a significant phenomenon. We've extended that to tequila barrel-aged Sauvignon Blanc, which I'd say try it. It's very unusual wine. So the smoke taint issue is a small one. We don't expect it to be a recurring matter. It's relatively immaterial to us and we don't expect it to have any impact on us going forward. But, yeah, I think that there's some smoke-tainted wine out there in the Valley.

Timothy Ramey -- Pivotal Research Group -- Analyst

I actually was thinking of it from a positive perspective, in that, as you put it, skipping a vintage and making an insurance claim is one of the best ways to enhance margins and perhaps pricing. Do you think that's overstating it?

Robert Sands -- President and Chief Executive Officer

For some companies, I'd say that that's possibly the case. We're not going to have to skip a vintage in any of our wines as a consequence of this but it may be the case with some others and it could work to their advantage or disadvantage. I'm not actually really sure one way or the other.

Timothy Ramey -- Pivotal Research Group -- Analyst

Thanks, Rob.

Operator

Our next question comes from the line of Amit Sharma of BMO Capital Markets.

Amit Sharma -- BMO Capital Markets -- Analyst

Hi, good morning, everyone.

Robert Sands -- President and Chief Executive Officer

Good morning.

Amit Sharma -- BMO Capital Markets -- Analyst

Rob, a quick clarification and then a bigger question on Premier. A 50 basis point SKU rationalization impact on the wine business in this year. Should we assume that's the end of it and going forward that is no longer a headwind? And then I have a Premier question.

Robert Sands -- President and Chief Executive Officer

So, no, I'd say that, in general, SKU RAT is going to be the case. I think it's just generally good business practice to cull the portfolio every year of smaller and slow-moving SKUs that are not strategic to the company. It helps to make sure that fundamentally the whole supply chain isn't mucked up and that you're managing the balance sheet, in particular working capital, efficiently by getting rid of, as I said, small and slow-moving SKUs that can tend to drive inventories up and basically gum up your operation. So we'll have SKU RAT every year, which in a big portfolio like our wine portfolio would not be unusual at all and is probably best practice, in terms of managing the business and the balance sheet and working capital and efficiencies.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. And then on Premier. Our conversation with some of the distributors has been really positive. There is clearly a lot of enthusiasm for how the brand has performed initially. Just as look maybe two or three years down the road and you think about the target audience and the segment, close to 150 million cases segment, what is a realistic scenario for Premier as a percent of share for that segment?

Robert Sands -- President and Chief Executive Officer

Well, I mean, that's a little bit hard to predict. But I said something a little earlier about not getting too focused on categories and it's really about brands. It's interesting to talk about the super premium category doing well because it's not a category. It's one brand. It's Michelob Ultra. And then Premier is a new brand or a new sub-brand of Corona that is designed to appeal to that consumer and has some additional attributes of being more premium than what's out there and successful at the moment.

So we expect -- the introduction has been extremely strong. You've talked to distributors. Distributors are very enthusiastic. Retailers are enthusiastic. The consumer seems to like the product so we think it's going to be a very highly successful SKU in the Corona brand family. So we're very optimistic but I don't think we can sit here necessarily and predict exactly what share it's going to take of what. As I said, there's no category anyway. It's a brand. So we think it's going to compete extremely well against the competition. Let's put it that way.

Amit Sharma -- BMO Capital Markets -- Analyst

I understand. Thank you so much.

Robert Sands -- President and Chief Executive Officer

And it may be, by the way, that the competition, hopefully, the competition does well and Premier does well.

Operator

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

Freda Zhuo -- Goldman Sachs -- Analyst

Hi. This is actually Freda on for Judy. Thanks for taking my question. I wanted to follow up on CAPEX a little bit and get a sense of what drove the decision making between expanding incrementally at Obregon versus maybe a little bit more at Mexicali or building even further within Nava. And then if you look at the $900 million guide for Obregon, like 5 million hectoliter expansion, it would imply that the cost per hectoliter is maybe a little bit higher versus what we've seen in some of the other CAPEX rounds that you've done. So if you could provide detail as to what the drivers to the difference may be for this expansion, that would be great. Thanks.

Robert Sands -- President and Chief Executive Officer

I'll let David answer part of the question but I'd say a couple of things. First of all, with the kind of growth that we are having and that we're now predicting in the short-term, it's basically resulted in our deciding that it's prudent, given the lead times, to start putting in place more capacity. Okay. Why Obregon? We think geographic diversification in Mexico is also a good idea. These states, California, Sonora, Coahuila, all have different politics and we think it's only prudent to make sure we have capacity in a number of different places in Mexico rather than overly concentrating our capacity in one particular place, even though we don't see any problem or major problem, let me put it that way, in any one of our geographic locations.

And then you also have to remember, when you're talking capacity, capacity is not -- we tend to talk about it in gross terms. 44 million hectoliters, which is, I don't know, about 500 million cases. And when I say that you've got to be careful, it's not just sort of the gross capacity. What we have to have is the capacity to meet our demand in our peak production months. That's how capacity is planned. Because it's not even throughout the year. There's certain months leading up into the summer where we have our largest production runs and therefore our capacity is determined off of those peak months. So it's just a process of us continuously reviewing where we are against our long-term plans, how we're doing in the near future and what we expect in the near future and what the lead times are in putting in place capacity. And so we make these decisions to stay ahead of the game.

And it's actually a fairly easy decision. I think I've said this probably in the past. In that probably the worst thing that we could do is run out of capacity. So if you start from that premise, given the growth in the business and the fact that the immediate term prospects remain consistent with that, it makes sense to be putting in place this capacity given the lead times so that we don't run out of capacity sometime in the future, which, as I said, from a whole bunch of perspectives, financially, customer service, that would be the worst thing that we could possibly do. So it's really not a very hard decision. David?

David Klein -- Chief Financial Officer

Yeah. And just on the buildout costs. Just to be clear about what we're doing at Obregon, we're building a brewery that's literally across the road from our brewery. So it's effectively a green field inclusive of infrastructure, land acquisition costs, and so forth. So from that perspective, it's in line with what we've paid elsewhere.

Freda Zhuo -- Goldman Sachs -- Analyst

Thanks.

Operator

Our next question comes from the line of Robert Ottenstein of Evercore ISI.

Robert Ottenstein -- Evercore ISI -- Analyst

Great. Thank you very much and terrific quarter and year. Corona, 6% growth for the family. Wondering if you could unpack that a little bit in terms of how much is Corona Extra, how are cans doing, draft. Any sense so that we can get a better sense of how that number builds up. And then looking out on the next 12 months, can you give us your expectations or rank between Pacifico, Premier, and Familiar? How those will rank in terms of adding incremental volume to the company? Thank you.

David Klein -- Chief Financial Officer

So in terms of growth within the family, I think about half of the growth rate came from the base Corona Extra, and that includes all package formats, Robert. But then the other half of the growth came from the rest of the family, but primarily driven by Familiar, the success of Familiar during the year.

Robert Ottenstein -- Evercore ISI -- Analyst

And how much growth did cans give?

David Klein -- Chief Financial Officer

I don't have that. We can get that to you, Robert. I don't have that off the top of my head.

Robert Ottenstein -- Evercore ISI -- Analyst

Terrific. And I'm hearing great things about Familiar. How would you rank, again, Familiar, Premier, and Pacifico in terms of likely incremental contribution over the next 12 months?

Robert Sands -- President and Chief Executive Officer

Well, it's a little hard to do because it's all a little bit different, in that Premier is sort of a full-blown national rollout, Familiar is more concentrated against the larger Hispanic markets, and Pacifico is really only in the West and has its core business in Southern California but is expanding rapidly. So I think it's going to be some and some. I guess I can't tell you off the top of my head exactly what the ranking is going to be other than we expect them all to make a significant contribution to that roughly 200 to 300 basis points that we were talking about in NPD. So for the moment, you can talk to Patty or whomever more about this after we look at that a little bit more closely, I'd say they're all making roughly equivalent contribution to the 200 to 300 basis points.

Robert Ottenstein -- Evercore ISI -- Analyst

Okay. And just to be clear, you're including Pacifico in that number as well?

Robert Sands -- President and Chief Executive Officer

Yes. I'm including Pacifico. Absolutely. Pacifico is not a new product introduction obviously. We're just driving that brand. But interestingly enough, Victoria is also growing at high double digits now. Right? It isn't one of our focus brands, meaning we're not really putting the same effort right now behind Victoria that we are behind Pacifico because that's one of the smaller brands that we think is first in line to really start driving to be the next major growth brand, but interestingly enough, Victoria is looking particularly strong as well. But Victoria is a little bit more like Familiar, in that it's got its main strength in the really concentrated Hispanic communities with large populations of un-acculturated Hispanics. Because Victoria is a very large brand in Mexico and very well-known in Mexico but is not very well known in the United States and therefore to the general market and the more acculturated or longer term Hispanic population. So that's got a lot of promise, too, is all I would tell you.

Robert Ottenstein -- Evercore ISI -- Analyst

And on Pacifico, I've noticed, at least in California, that it seems to be priced somewhat less than Corona and Modelo. Is that correct? And do you plan to have, if that is correct, somewhat lower pricing on Pacifico nationally? Or do you look to line price it?

Robert Sands -- President and Chief Executive Officer

The answer is no. I mean, I don't know exactly what you're seeing. I think in general terms, it's pretty much priced with everything else. And there would be no -- we would not be interested in a strategy to price it below Corona or Modelo Especial.

Robert Ottenstein -- Evercore ISI -- Analyst

Good to hear.

Robert Sands -- President and Chief Executive Officer

So that's a resounding no.

Robert Ottenstein -- Evercore ISI -- Analyst

It must have been a retailer's decision then.

Robert Sands -- President and Chief Executive Officer

Yeah, that can always happen. We always see anecdotes. Retailers control their own pricing. So if they want to really blow something out, they'll do it. But I think if you even look at pricing in IRI across Pacifico versus the other familiar, you're not going to see anything different. And, as I said, resoundingly no on there's no strategy to do that. We wouldn't do that.

Robert Ottenstein -- Evercore ISI -- Analyst

Right answer. Right answer. Thank you.

Operator

Our next question comes from the line of Bill Chappell with SunTrust.

Robert Sands -- President and Chief Executive Officer

Hi, Bill.

William Chappell -- SunTrust Robinson Humphrey -- Analyst

Good morning. Two quick questions. One, just any thoughts, update on aluminum and tariffs? I understand that you're probably largely hedged and it's still a small part of your input cost but any kind of initial thoughts on how it could affect you or the industry? And then second, just on a modeling standpoint, on depreciation, I think you said it's up 30% in '19. Is that straight-lined across the year or are there things that come on where it kind of builds as we go through the year?

David Klein -- Chief Financial Officer

So on the depreciation point, yeah, it'll build a bit as we put assets into service but the total will be that 30%, not dissimilar to this year's number. It'll be about $50-some million additional depreciation for the full year but it'll build over time.

And from a tariff perspective, as you mentioned, we have a strong hedging program so we're protected from a price standpoint. But even from a specific imposition of the tariff on aluminum, it's going to have a de minimis effect on Constellation. And you asked about the industry. I can't really comment on that but it's not really going to have an effect on us as a result of our hedging program and our source of supply.

William Chappell -- SunTrust Robinson Humphrey -- Analyst

Got it. Thanks so much.

Operator

Our last question comes from the line of Mark Swartzberg of Stifel Financial.

Mark Swartzberg -- Stifel, Nicolaus & Company -- Analyst

Great. Hey, good morning, guys, and thanks for taking my question. I like that phrase, Rob, SKU RAT. I hadn't heard it abbreviated that way. And that's my question.

Robert Sands -- President and Chief Executive Officer

We don't usually like to talk about rats on a conference call but.

Mark Swartzberg -- Stifel, Nicolaus & Company -- Analyst

That's fair enough. But you took down your outlook for your wine and spirits business at CAGNY and SKU RAT seems to the factor here. Two questions really. Is that the only factor? And then secondly, if you say that you set the targets back in November of '16 and then you've decided to be more aggressive with SKU rationalization, what changed? Are you seeing just higher rates of decline in those SKUs that you want to reduce? So those two questions.

David Klein -- Chief Financial Officer

Yeah, I'll let Rob kind of finish up with the answer but I'll just start out, Mark, by saying we saw in calendar year '17 a bit of a slowdown in the overall wine market. We still believe that the wine market is a 4% to 5% grower over time, we just saw a bit of a pullback. But we're also seeing this bifurcation in the market where it looks a little bit like beer, where you're seeing the higher end of the market. And for CAGNY, we arbitrarily drew a line at $11.00 a bottle at retail. We're seeing that part of the market growing at 13% and below that growing at 1%. So, yes, we're probably being a little more aggressive than we have been in the past to cull our portfolio below $11.00 so we have capacity to produce the brands like Meiomi and Kim Crawford and The Prisoner and other brands in our focus portfolio that are growing, high-margin brands. And so we're making a bit of an ROIC trade-off that's causing us to have a bit of a drag on the net sales line.

Robert Sands -- President and Chief Executive Officer

Yeah, I don't have anything really to add other than the bifurcation that David is talking about is becoming more pronounced in that the growth is moving up the chain from a premiumization point of view, meaning the fastest growing categories are higher priced now than they even were a couple years ago. And the lower end of the market is less healthy, even more so than it was a few years ago.

In actuality, that's a positive trend and it's a positive trend for us, in particular, because I'd say we predicted this happening. And we've been generally organizing our portfolio and tweaking our portfolio to keep it moving up the price spectrum from an average price point perspective. So I think we're particularly well-positioned at the current time to take advantage of the fact that these higher price categories are now where the real outsized growth is. and I think a good example of that is a brand like Meiomi, which is a $20.00 bottle of wine and a very large brand, much larger than -- five years ago, there was no brand at $20.00 a bottle that sold anywhere near or had the growth of what Meiomi has.

So these are very positive trends for us going forward. And I don't think that what one really should be looking at necessarily is our overall growth rate because of precisely this fact. There will be continued SKU RAT at the lower end. And we will continue to focus more and more on the higher price points. So therefore sort of looking at our focus brand portfolio, which constitutes the large bulk of our sales and profits, is really where you should look. And there the growth is extremely healthy. I mean, that could be a business all in and of itself. Right? A multibillion dollar business with growth in high single digits in consumer products. That would make it probably in the top tenth percentile of all consumer products companies in terms of growth in CPG. So that's what I would look at if I were you guys.

Mark Swartzberg -- Stifel, Nicolaus & Company -- Analyst

Great. Thank you, guys.

Operator

And that was our final question. I will now turn the floor back over to Rob Sands for any additional or closing remarks.

Robert Sands -- President and Chief Executive Officer

Well, thank you all very much for the call today and your great questions. I'd like to reiterate how proud I am of our many achievements in fiscal '18. And our fiscal 2019 guidance reflects the confidence that we have in our business to sustain our top tier CPG growth profile. And we look forward to speaking with you in late June when we report our first quarter results. And until then, of course, we'll be celebrating Cinco de Mayo by ringing the closing bell at the New York Stock Exchange and, as always, we hope you choose our fine products to enjoy responsibly as part of your spring celebrations. So thanks again, everyone, and have a great day.

Operator

Thank you, ladies and gentleman. This does conclude today's conference call. You may now disconnect.

Duration: 92 minutes

Call participants:

Patty Yahn-Urlaub -- Senior Vice President of Investor Relations

Robert Sands -- President and Chief Executive Officer

David Klein -- Chief Financial Officer

Dara Mohsenian -- Morgan Stanley -- Analyst

Caroline Levy -- Macquarie Research -- Analyst

Lauren Lederman -- Barclays -- Analyst

Vivian Azer -- Cowen & Company

Bonnie Herzog -- Wells Fargo Securities -- Analyst

Andrea Teixeira -- JP Morgan -- Analyst

Stephen Powers -- Deutsche Bank -- Analyst

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

Timothy Ramey -- Pivotal Research Group -- Analyst

Amit Sharma -- BMO Capital Markets -- Analyst

Freda Zhuo -- Goldman Sachs -- Analyst

Robert Ottenstein -- Evercore ISI -- Analyst

William Chappell -- SunTrust Robinson Humphrey -- Analyst

Mark Swartzberg -- Stifel, Nicolaus & Company -- Analyst

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