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 are making solid progress in refining our brand portfolio to shift to a higher-end focused business to deliver net sales growth and margin expansion.
We also believe a key component to driving faster growth rates is to invest in and strengthen our leadership position within the DTC and 3-tier eCommerce channels.
Our business strategy for the Beer segment focuses on upholding our leadership position in the high-end segment of the U.S. beer market through maintenance of leading margins, enhancements to our results of operations and operating cash flow, and exploring new avenues for growth.
The favorable product mix and decrease in branded wine and spirits shipment volume are attributable to the consumer-led premiumization and mix improvements of our portfolio.
Our ability to consistently generate robust cash flow from our operations is one of our most significant financial strengths; it enables us to invest in our people and our brands, make capital investments and strategic acquisitions, provide a cash dividend program, and from time-to-time, repurchase shares of our common stock.
Constellation Brands, Inc. Q3 FY 2023 Form 10-Q#WORTHREACHINGFOR I 44MD&ATable of Contentsin unrealized net loss from the changes in fair value of our investment in Canopy and (ii) improvements within the Beer segment.
As a part of our strategy, we have launched Digital Business Acceleration which we believe will enable us to drive results by enhancing our business in key areas including procurement, end-to-end supply chain planning, and marketing optimization.
StrategyBusiness strategyOur overall strategic vision is to consistently deliver industry-leading total stockholder returns over the long-term through a focus on these key pillars:•continue building strong brands people love with advantaged routes to market;•build a culture that is consumer-obsessed and leverages robust innovation capabilities to stay on the forefront of consumer trends; and•deliver on impactful ESG initiatives that we believe are not only good business, but also good for the world.
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 data systems, architecture, and infrastructure that enables our business; and exemplifying intentional and proactive balance sheet management.
The remaining Mexicali Brewery net assets have met held for sale criteria as of November 30, 2022.Our business strategy for the Wine and Spirits segment focuses on higher-end brands, improving margins, and creating operating efficiencies.
Our strategic relationship with Canopy, which will continue through the completion of the Canopy Transaction including the conversion of our Canopy common shares into Exchangeable Shares, is designed to help position it to be successful in cannabis production, branding, and intellectual property.
We have seen consumers shift more of their total shopping spend to online channels since the COVID-19 outbreak, which has led to increased eCommerce sales, including DTC, for our business.
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 innovation capabilities to create new line extensions behind celebrated, trusted brands and package formats that are intended to meet emerging needs.
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.
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, maintain our target net leverage ratio and dividend payout ratio, invest to support the growth of our business, and deliver additional returns to stockholders through periodic share repurchases.
In the U.S., we are one of the top growth contributors at retail among beverage alcohol suppliers.
We expect to have continued access to capital markets and to be able to continue to return value to stockholders through dividends and periodic share repurchases.
While each team has its own distinct strategy, both remain aligned to the goal of accelerating performance by growing net sales and expanding margins.
In response to COVID-19, we have ensured our on-going liquidity and financial flexibility through cash preservation initiatives, capital management adjustments, and cost control measures.
The increase in Beer net sales is largely due to (i) $77.0 million of favorable impact from pricing in select markets within our Mexican beer portfolio, (ii) $49.7 million of shipment volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, and (iii) $12.8 million of favorable product mix primarily from a shift in package sizes.
Constellation Brands, Inc. Q3 FY 2023 Form 10-Q#WORTHREACHINGFOR I 34MD&ATable of ContentsESG strategyWe believe our ESG strategy enables us to better meet stakeholder expectations, reflect our Company values, and directly address pressing environmental and societal needs that are important to our communities, consumers, and employees.
The increase in Beer net sales is largely due to (i) $549.8 million of shipment volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, and (ii) $210.3 million of favorable impact from pricing in select markets within our Mexican beer portfolio, partially offset by $13.1 million of unfavorable product mix primarily from a shift in package types.
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.
For the remainder of Fiscal 2023, we expect U.S. depletion volume to exceed U.S. shipment volume.
The increase in organic net sales is driven by (i) a $49.2 million increase from favorable product mix and (ii) $10.9 million of favorable impact from pricing, partially offset by a $50.5 million decrease in branded wine and spirits shipment volume.
We continue to refine our portfolio primarily through an enhanced focus on higher-margin, higher-growth wine and spirits brands.
In addition, we continue to identify on-going cost savings initiatives, including our commodity and foreign exchange hedging programs.
Our recent divestiture and acquisitions support our strategic focus on consumer-led premiumization trends and meeting the evolving needs of our consumers.
Also includes $115.6 million and $70.7 million of costs designed to improve their organizational focus, streamline operations, and align production capability with projected demand for Nine Months 2023 and Nine Months 2022, respectively.
Canopy gross profit (loss) increased to $2.9 million for Third Quarter 2023 from $(56.5) million for Third Quarter 2022.
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.
and eliminations123.9 26.6 97.3 NMComparable Adjustments(47.2)31.3 (78.5)NMConsolidated gross profit$3,807.8 $3,574.7 $233.1 7 %The increase in Beer gross profit is primarily due to $298.6 million of shipment volume growth and the $210.3 million favorable impact from pricing, partially offset by $160.7 million of higher cost of product sold and $29.9 million of unfavorable product mix.
The increase in organic gross profit is attributable to a $40.3 million increase from favorable product mix, partially offset by (i) a $25.6 million decrease in branded wine and spirits shipment volume and (ii) $12.3 million of higher cost of product sold.
This includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, including within the DTC and 3-tier eCommerce channels, as well as continued expansion, optimization, and/or construction activities for our Mexico beer operations.