Bill Newlands
President and Chief Executive Officer at Constellation Brands
Thank you, Patty, and good morning, everyone. Before we get started today, I wanted to take a minute to recognize Patty who, after 15 years with Constellation, has elected to retire next month. We appreciate Patty's commitment in helping shepherd our Investor Relations function since joining the company in 2007. And on behalf of all of our team here at Constellation, we thank Patty for her many contributions to our success over the years including managing our relationships with a number of folks on this call. We wish her the very best in retirement.
Effective July 1, leadership of our IR function will transition to Joe Suarez who joined Constellation last November as Vice President of Investor Relations. Joe previously served as Managing Director at Teneo, a global CEO advisory firm. Prior to his time there, Joe also served in a range of commercial, governance, finance and investor relations roles for a couple of major players in the global resources sector. We look forward to the continued success of our Investor Relations function under Joe's leadership.
With that, let's move on to a discussion of our first quarter results. We're off to a strong start in our new fiscal year, thanks to the solid fundamentals of our business, the disciplined execution of our strategy and the relentless commitment of our Constellation Brands team as well as that of our distributors and retail partners.
Our performance in Q1 fiscal '23 continued to build momentum in three key areas tied to our long-term goals. First, our beer business once again delivered industry-leading share gains with Modelo Especial and Corona Extra taking the number one and number four spots among share-gaining brands across track channels. The business achieved an important milestone, having reached more than 5 full points in shares gained over the last five years.
Coming back to Q1, our beer business delivered net sales growth of 21% and added nearly 15 million cases in incremental shipment volume. As anticipated, these significant increases were partly driven by the lapping of supply challenges as a result of severe weather impacts in Q1 fiscal '22. For clarity, ships and depletes in our current quarter were roughly equal on an absolute basis. Importantly, our shipments mainly were underpinned by continued strong demand for our authentic Mexican beers, our consistent and balanced approach to pricing and the effective ramp-up of new brewing capacity from our organic growth investments.
Second, our wine and spirits business outperformed the U.S. Wine and Spirits category in tracked channels, where we gained share supported by strong performance of our higher-end brands. Our wine and spirits business grew net sales by 2% and saw overall U.S. depletions increase by over 1% with the premium wine and fine wine and craft spirits portions of our portfolio achieving 8% and 16% depletion growth respectively with brands like Meiomi, the Prisoner, High West and Casa Noble delivering double-digit depletion growth rates.
And third, our sustained and strong operating performance and cash flow generation enabled us to continue to deliver against our established capital allocation priorities.
Our balance sheet remains strong. We continue to invest behind the momentum of our beer business with a focus on growth and flexibility, and we exceeded our planned $500 million accelerated share repurchase activity with an additional $800 million in buybacks. In fact, we have now fulfilled the share buyback portion of the $5 billion goal in cash returns to shareholders that we promised.
Now, let's discuss in more detail our beer business performance. We maintained our number one position as the number one supplier in high-end beer in the U.S. and achieved depletion growth of almost 9% in the quarter, consistent with our expectations and our growth profile target.
As for Memorial Day, of which celebrations took place within the quarter, we were the number one share gainer for that holiday, capturing 1.5 share points of total beer and 2.3 points of high-end beer in the U.S. tracked channels. In the on-premise, our beer business achieved a 30% depletion growth rate across the portfolio and delivered double-digit growth for the Corona and Modelo brand families as well as Pacifico.
As mentioned, Modelo Especial remains the number one share gainer in tracked channels, adding over 1.2 points in incremental share, nearly double the incremental share of the second largest gainer. Overall, Modelo Especial delivered the total depletion growth above 15% for the quarter.
Our Modelo Chelada brand family grew in line with our medium-term double-digit CAGR expectations, achieving over 39% depletion growth in the quarter. The national release of our new Limon y Sal 12-ounce 12-pack helped this popular flavor of our chelada brand delivered the 15th largest share gain across the entire U.S. beer category in tracked channels. And although it is still very early days for our other Modelo innovations, we are encouraged by the initial data we're seeing in test markets, particularly for [Indecipherable].
We continue to be encouraged by the sustained healthy growth of Corona Extra. This brand delivered over 4% depletion growth for the quarter, and as mentioned earlier, was the number four share gainer in the U.S. beer market in tracked channels. We continue to expect modest growth for Corona Extra in fiscal '23.
And Pacifico delivered depletion growth of more than 20% for the quarter. We continue to expect Pacifico to grow in line with our medium-term 10% to 15% total annual volume growth forecast in fiscal '23. All in, our beer business delivered strong net sales growth for the quarter and this, in turn, supported a double-digit increase in operating income.
Looking ahead, we're confident that our beer business remains well positioned to deliver against our net sales and operating income growth targets for fiscal '23 despite the ongoing inflationary pressures affecting consumers. We'll continue to take appropriate pricing and cost management actions to ensure we maintain both the growth algorithm of our brands and our industry-leading margins.
We'll also continue to support our consumer-led innovation and brand building efforts throughout the remainder of the year, which will include the launch of our Fresca Mixed vodka spirits and Tequila Paloma flavors in early September. And we continue to make progress with our brewing capacity additions including our new brewery to be built in the state of Veracruz.
During the quarter, we were pleased to have formally announced the location of our new brewery with the President of Mexico, Andres Manuel Lopez Obrador as well as with both the Governor of the State of Veracruz and the Mayor of the City of Veracruz along with federal, state and municipal authorities. The new brewery will be located in the Port of Veracruz, one of the most prominent sea ports in the region and will have ample access to water and necessary resources and a highly capable workforce as President Lopez Obrador himself has stated. We look forward to continuing the remarkable journey of our strong performance of our beer business with a focus on both growth and flexibility as we deploy the investments needed to meet steadily rising demand for our products.
Now, let's move on to wine and spirits. Our strategy to increasingly focus on higher-end brands, aligned with ongoing consumer-led premiumization trends, continues to enhance the commercial performance of our wine and spirits business. The premium wine, fine wine and craft spirits portions of our portfolio all significantly outperformed their corresponding categories and tracked channels. Meiomi, the Prisoner and Kim Crawford remained the driving forces behind our premium and fine wine growth with continued share gains in tracked channels and strong increases in depletions. And in craft spirits, our High West and Casa Noble brands delivered dollar sales growth ahead of the competition. We maintained share in mainstream wine with Woodbridge primarily driving that performance.
Our innovation efforts also continued to produce excellent results with Meiomi Red Blend becoming the second largest new product growth contributor in the wine category in just over a quarter since its launch. And we are seeing incremental growth from the expansion of our wine and spirits brands into international markets with particularly significant gains of more than 60% in international shipment volumes for our fine wine and craft spirits products.
As with our beer business, we continue to closely monitor the state of consumer and remain disciplined in our approach to ensure we balance both pricing and growth across our wine and spirits portfolio as economic conditions further evolve. That said, while consumers are reporting increasing concerns about the economy, these concerns have not yet translated into significant behavior change for beverage alcohol shoppers, particularly for our major brands. In total, beverage alcohol servings per capita in the U.S. have remained and are expected to remain stable with growth of 1% to 2% based on population growth expectations.
Against that backdrop, we are encouraged by the continued strength of our high-end beer and wine and spirits brands in the first quarter of this fiscal year and remain confident in our ability to drive additional growth for both businesses over the medium term. To that end, we are accelerating our investments in digital capabilities to further support future growth. These investments will be focused on securing the talent and enhancing the technologies needed to further optimize our marketing efforts and reinforce our leading position in 3-tier e-commerce and DT sales as well as unlock value from enhancements to our procurement, supply chain management, plant operations and back office activities.
Online beverage alcohol sales remain over 4 point times the pre-COVID rates and we are seeing great traction with our DTC and 3-tier e-commerce efforts, having outperformed the competition by 3.5 points in these channels over the first quarter. We are now planning additional investments as part of these efforts this fiscal year and expect the total impact of this digital business acceleration program to ultimately result in incremental earnings to be realized over the coming years driven by more effective marketing as well as more efficient supply chain, procurement, data and analytics and operations platforms. Garth will provide additional details in just a few minutes.
Beyond the growth, we continue to expect from our businesses, which will be further supported by our digital business acceleration program. We also continue to believe that our ownership position in Canopy represents a compelling opportunity in developing -- in a developing industry with significant long-term growth potential.
Within that context, we think Canopy's focus on premiumizing its cannabis-branded portfolio to improve performance in Canada is appropriate. And we are also supportive of its efforts in the U.S. to strengthen the distribution of its emerging CPG brands and build a competitive THC ecosystem as Canopy continues to gain traction. Canopy's agreements with Acreage, TerrAscend, Wana and Jetty position it to quickly scale operations across the U.S. upon federal legalization.
We continue to support Canopy through our strategic relationship sharing our experience and capabilities to support the continued advancement of their U.S. strategy, specifically in the areas of commercial sales, marketing and operations. And as announced yesterday, part of our holding in Canopy's convertible debt will be transitioned into equity, which will reduce Canopy's debt while maintaining our share of equity ownership without putting additional capital at risk.
On a separate note, earlier today, we also announced that our Board of Directors has approved a proposal to eliminate our Class B common stock. After an extensive review and analysis by the special committee and with the special committee's recommendation, our Board agreed that it is in the best interest of the company and all Constellation shareholders to eliminate the Class B common stock. Under the proposal, owners of our Class B common stock, which are primarily the Sands family, would convert those shares into Class A common stock and receive $64.64 per share in cash, which equates to a total amount of $1.5 billion. The transaction requires shareholder approval, including approval of a majority of the issued and outstanding shares of Class A common stock not held by the Sands family or their affiliates, executive officers of the company or directors that also hold Class B common stock.
Once shareholder approval is received, we expect that the proposal would deliver a number of corporate governance and other benefits, including the elimination of the higher vote Class B common stock, including the associated voting control of the Sands family and a reduction in the concentration of voting power, a simplification of the company's equity capital structure to better align the voting rights and interests of all shareholders, a broader appeal of our shares to a larger base of investors who prefer single voting class common stock structures, operating cost savings associated with executive salary and certain benefits as well as administrative savings from maintaining the Class B common stock. We expect the executive salary and benefits cost savings will be about $15 million to $20 million per year using the $17.5 million midpoint of that cost savings range and our current trading multiple of approximately 21 times PE that equates to roughly $300 million of value on a tax-effective basis. Other corporate governance benefits include a rotation of the lead independent director position on the Board at the next available normal cycle opportunity. And finally, a shift to majority voting in uncontested elections from the current plurality standard for our Board of Directors and the adoption of a Board anti-pledging policy. We will be seeking the approval of shareholders at a special meeting, and a proxy statement including all details of the proposal will be available ahead of that special meeting. In the meantime, the announcement we made this morning related to the proposal can be found on our company website, cbrands.com. And at this point, we will be unable to comment further or provide additional information on the proposal during today's call beyond what is available in that announcement.
In closing, I once again want to recap the three highlights I shared earlier on our performance in the first quarter of fiscal '23. First, our beer business continued to achieve industry-leading share gains, driven by our high-performing Modelo Especial, Modelo Chelada, Corona Extra and Pacifico brands delivering overall strong financial results with double-digit growth for both net sales and operating income.
Second, our wine and spirits business outperformed the U.S. Wine and Spirits category in tracked channels, particularly through the strong performance of our higher-end brands, and also grew net sales in the quarter. And third, we continued to deliver against our established capital allocation priorities, including through the $1.3 billion return to shareholders and share repurchases through June and dividends for the first quarter of this year. We are now at over 90% of our $5 billion promised goal.
We were very encouraged by the continued strength of our business in the first quarter of this fiscal year and remain confident in our ability to drive sustained growth over the medium term.
And with that, I'd now like to turn it over to Garth, who will give you more detail of our financial results in the quarter. Garth?