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    Constellation Brands Inc (STZ)

    Business Description

    Constellation Brands, Inc. is an international producer and marketer of beer, wine, and spirits, with operations in the U.S., Mexico, New Zealand, and Italy. The company is the second-largest beer company in the U.S. and holds a strong position in the high-end beer segment, with brands such as Corona Extra, Modelo Especial, and Pacifico . Their business is organized into two main divisions: Beer, and Wine and Spirits, with the Beer segment being the largest contributor to revenue . Constellation Brands continues to expand its market presence through strategic investments and innovations, particularly in consumer-led premiumization trends and digital channels .

    1. Beer - Produces and markets high-end imported beer brands, including Corona Extra, Modelo Especial, and Pacifico, which account for the majority of the company's revenue. Notable achievements include Modelo Especial becoming the best-selling beer in the U.S. .
    2. Wine and Spirits - Focuses on higher-end brands with a portfolio that includes well-known names like Robert Mondavi Winery and Kim Crawford. This segment has been reshaped to emphasize higher-margin, higher-growth brands .

    Q3 2025 Summary

    Initial Price$241.66August 29, 2024
    Final Price$240.95November 29, 2024
    Price Change$-0.71
    % Change-0.29%

    What went well

    • Constellation Brands' beer business has consistently outperformed the overall beer category and the CPG sector for over a decade, with key brands like Modelo having significant growth potential due to low awareness and household penetration.
    • The company's strategic focus on higher-end Wine and Spirits brands is showing positive results, with premium brands like Meiomi and Kim Crawford increasing depletions by over 7%, and the craft spirits portfolio growing by 9%.
    • Constellation Brands is effectively returning capital to shareholders through significant share repurchases, with approximately $670 million returned year-to-date, and a remaining $1.9 billion share repurchase authorization, indicating strong commitment to shareholder value.

    What went wrong

    • Decline in the U.S. beer category with acknowledgment from management that the category isn't healthy, which may impact Constellation Brands' ability to maintain growth in their beer segment. As CEO William Newlands stated: "the beer category hasn't been particularly healthy".
    • Ongoing underperformance and negative outlook in the Wine and Spirits division, especially at the lower end which is described as "not healthy", indicating challenges in turning around this segment. Analyst Lauren Lieberman noted an "ongoing negative revision cycle" for this business , to which management agreed that they "continue to be hit very hard at the lower end of the business".
    • Increased risks and uncertainties such as potential tariffs, macroeconomic headwinds, higher unemployment, and increased volatility have led to wider-than-normal guidance ranges, signaling less visibility into future performance and potential downside risk. As William Newlands mentioned, "we decided on this particular range... include things like unemployment, potential tariffs... There's been a lot of volatility". Garth Hankinson acknowledged that "we acknowledge that the range right now is a little bit wider than we typically are given where we are in the calendar year".

    Q&A Summary

    1. Beer Depletion Softness
      Q: Is beer weakness short-term or long-term? Impact on growth guidance?
      A: Management believes the near-term softness in beer is not structural or long-term. Factors include higher unemployment in 31 states and spending declines among consumers earning under $50,000. Alcohol's share of the consumer basket remains consistent, and they expect to emerge from this trough soon.

    2. Capital Allocation and CapEx
      Q: How will you adjust CapEx amid slowdown? Prioritize buybacks?
      A: Expansions are modular and can be advanced or delayed based on market conditions. They continue significant share repurchases, with $220 million bought back this quarter and $1.9 billion remaining authorized. Veracruz is on schedule, with the first module of 3 million hectoliters, but future capacity expansions can be adjusted. Capital allocation remains disciplined, with a bias toward returning capital to shareholders.

    3. Beer Category Decline
      Q: Given category decline, how will you achieve growth targets?
      A: Despite the beer category's weakness, they have consistently outperformed it. Modelo has significant growth potential with increasing awareness and household penetration. Pacifico and Victoria are showing strong double-digit growth. They have outpaced CPG for over a decade and expect to continue doing so.

    4. Tariff Risk and Volumes
      Q: How would tariffs affect volume and margin priorities?
      A: They have various scenarios but it's too early to speculate. They will adjust their approach depending on developments. Beer volume guidance remains at 4% to 7% growth, acknowledging macroeconomic risks but optimistic due to positive unemployment data.

    5. Beer Margins Outlook
      Q: What's the outlook for beer margins considering pricing, commodities, FX?
      A: They maintain beer margin expectations at 39% to 40%. Tailwinds include volume growth, cost savings, and pricing actions; headwinds are normal inflation, increased depreciation from expansions, and capacity absorption. Margins could vary yearly but expect to stay within this range.

    6. Wine and Spirits Challenges
      Q: What's behind Wine and Spirits underperformance?
      A: The turnaround is taking 9 to 12 months as planned. Positive signs in Q3 with Meiomi and Kim Crawford up 7%, and craft spirits up 9%. The lower end of the business is weak; focusing on higher-end brands like SVEDKA is part of their strategy, and they remain optimistic for continued improvement.

    7. Pricing Strategy
      Q: Will you promote more aggressively in light beer segment?
      A: They assess pricing by SKU and market, believing 1% to 2% pricing increases remain appropriate. They avoid big swings, aiming for consumer-friendly consistency, as during COVID.

    8. Inventories and Shelf Space
      Q: What's the status of beer inventories and shelf space expectations?
      A: Inventories are consistent with historical levels, with slightly more on hand to mitigate potential order disruptions. After strong double-digit shelf space gains last year, they expect more normal gains in 2025, continuing to outperform and earn shelf presence.

    9. Shipments vs. Depletions
      Q: Will shipments and depletions remain aligned? Gap with data?
      A: They expect shipments and depletions to be largely aligned for the full year. Circana data captures only about 50% of sales; they acknowledge volatility in the gap but suggest questions about it be directed to Circana.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDQ3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025Q2 2025Q3 2025
    Beer2,098.62,392.71,968.51,702.88,162.62,272.82,530.22,032.4
    Wine and Spirits416.3444.1502.4436.41,799.2389.0388.7431.4
    - Wine361.0383.9435.8371.41,552.1329.3336.2374.6
    - Spirits55.360.266.665247.159.752.556.8
    Canopy Segment--------
    Consolidation and Eliminations--------
    Total Revenue2,514.92,836.82,470.92,139.29,961.82,661.82,918.92,463.8
    Revenue by Geography - in Millions of USDQ3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025Q2 2025Q3 2025
    U.S.----9,748.1---
    Non-U.S.----213.7---
    - Canada--------
    - New Zealand--------
    - Italy--------
    - Other--------
    Total Revenue2,514.9-2,470.9-9,961.82,661.8--
    KPIs - MetricQ3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025Q2 2025Q3 2025
    Beer Shipments107.0123.0101.187.0-115.1128.6-
    Wine & Spirits Shipments5.96.16.15.7-5.65.5-

    Executive Team

    NamePositionStart DateShort Bio
    William A. NewlandsPresident and Chief Executive OfficerMarch 2019William A. Newlands has served as CEO since March 2019 and as President since February 2018. He joined the company in January 2015 and has held various senior management roles, including COO and President of the Wine & Spirits Division .
    Garth HankinsonExecutive Vice President and Chief Financial OfficerJanuary 2020Garth Hankinson has been the CFO since January 2020. He was previously the Senior Vice President of Corporate Development from February 2016 to January 2020, and has been with the company since October 2007 .
    James O. BourdeauExecutive Vice President and Chief Legal OfficerDecember 2017James O. Bourdeau has served as Chief Legal Officer since December 2017 and as Secretary since April 2017. He joined Constellation Brands in September 2014 after working at Nixon Peabody LLP .
    James A. Sabia, Jr.Executive Vice President and President, Beer DivisionFebruary 2022James A. Sabia, Jr. has been President of the Beer Division since February 2022. He joined Constellation Brands in August 2007 and has held various roles, including Executive Vice President, Chief Marketing Officer .
    Samuel GlaetzerExecutive Vice President and President, Wine and Spirits DivisionMarch 2024Samuel Glaetzer has been President of the Wine and Spirits Division since March 2024. He joined the company in March 2014 and previously worked at Treasury Wine Estates .
    Mallika MonteiroExecutive Vice President, Chief Growth & Digital Officer, Managing Director, Beer BrandsDecember 2023Mallika Monteiro has been an Executive Vice President since October 2019. She began her current role in December 2023 and joined Constellation Brands in October 2016 .
    Michael McGrewExecutive Vice President, Chief Communications, Strategy, ESG & Diversity OfficerDecember 2023Michael McGrew has been an Executive Vice President since April 2020. He started his current role in December 2023 and joined Constellation Brands in 2014 .

    Questions to Ask Management

    1. In the Wine and Spirits segment, despite mentioning "green shoots," the business continues to face challenges, including a significant impairment from $3 billion to $500 million. Can you explain the drivers behind such a dramatic change and what strategic actions are being taken to turn around this segment?

    2. Now that you've achieved your leverage target and have $2.2 billion remaining in share repurchase authorization, how do you plan to balance further capital returns to shareholders with potential investments in growth opportunities, especially considering the expected uplift in free cash flow beyond fiscal '25?

    3. Given that shipments have been ahead of depletions in the first half and you expect a reversal in Q3 due to maintenance activities, how confident are you in achieving the higher end of your Beer top-line growth guidance amid potential macroeconomic headwinds?

    4. With Beer gross margins benefiting from cost savings and efficiency initiatives, and with increased marketing spend and less fixed cost absorption expected in the second half, how sustainable is your margin expansion going forward, and what risks might impact these margins?

    5. Despite the significant shelf space gains in the spring resets, can you quantify the actual sales lift from these gains, and how does this factor into your expectations for accelerated top-line growth in the Beer segment in the second half, considering the current macroeconomic pressures on consumer demand?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateJanuary 2021 November 2023
    End Date/DurationNo expiration No expiration
    Total additional amount$2.0 billion $2.0 billion
    Remaining authorization amount$164.5 million $2.0 billion
    DetailsTreasury shares Treasury shares

    Past Guidance

    Q2 2025 Earnings Call

    • Issued Period: Q2 2025
    • Guided Period: FY 2025
    • Guidance:
      1. Enterprise Net Sales: Expected to grow 4% to 6% .
      2. Enterprise Comparable Operating Income: Expected to grow 8% to 9% .
      3. Comparable EPS: $13.60 to $13.80 .
      4. Beer Business:
        • Net Sales Growth: 6% to 8% .
        • Operating Income Growth: 11% to 12% .
        • Operating Margin: Approximately 39% .
      5. Wine and Spirits Business:
        • Net Sales Decline: 4% to 6% .
        • Operating Income Decline: 16% to 18% .
      6. Interest Expense: Approximately $430 million .
      7. Comparable Effective Tax Rate: 18.5% .
      8. Free Cash Flow: $1.4 billion to $1.5 billion .
      9. Marketing Expense for Beer: Approximately 8.5% of net sales .
      10. SG&A Expense for Beer: Approximately 5% of net sales .

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2025
    • Guidance:
      1. Enterprise Net Sales Growth: 6% to 7% .
      2. Enterprise Operating Income Growth: 8% to 10% .
      3. Comparable EPS Guidance: $13.50 to $13.80 .
      4. Beer Business:
        • Net Sales Growth: 7% to 9% .
        • Operating Income Growth: 10% to 12% .
        • Operating Margin: Approximately 39% .
      5. Wine and Spirits Business:
        • Net Sales Performance: Relatively stable year-over-year .
        • Operating Income Decline: 9% to 11% .
      6. Corporate Expense: Approximately $260 million .
      7. Interest Expense: $445 million to $455 million .
      8. Comparable Effective Tax Rate: 18.5% .
      9. Free Cash Flow: No specific guidance, but Q1 was $315 million .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Enterprise-wide Net Sales Growth: 6% to 7% .
      2. Beer Business Net Sales Growth: 7% to 9% .
      3. Wine and Spirits Business Net Sales: 0.5% decline to 0.5% growth .
      4. Enterprise-wide Operating Income Growth: 8% to 10% .
      5. Beer Business Operating Income Growth: 10% to 12% .
      6. Wine and Spirits Business Operating Income: Decline by 9% to 11% .
      7. Corporate Expense: Approximately $260 million .
      8. Interest Expense: $445 million to $455 million .
      9. Comparable Effective Tax Rate: 18.5% .
      10. Noncontrolling Interest: About $35 million .
      11. Weighted Average Diluted Shares Outstanding: Around 183 million .
      12. Reported EPS: $13.40 to $13.70 .
      13. Comparable EPS: $13.50 to $13.80 .
      14. Free Cash Flow: $1.4 billion to $1.5 billion .
      15. Capital Expenditures (CapEx): $1.4 billion to $1.5 billion .
      16. Beer Operating Margins: Approximately 39% .
      17. Wine and Spirits Operating Margins: Approximately 20% .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Enterprise Comparable EPS: $12 to $12.20 .
      2. Beer Business:
        • Net Sales Growth: 8% to 9% .
        • Operating Income Growth: 7% to 8% .
        • Operating Margin: Approximately 38% .
      3. Wine and Spirits Business:
        • Organic Net Sales Decline: 7% to 9% .
        • Operating Income Decline: 6% to 8% .
      4. Corporate Expenses: $260 million to $270 million .
      5. Interest Expense: Approximately $450 million .
      6. Comparable Effective Tax Rate: Approximately 19% .
      7. Weighted Average Diluted Shares Outstanding: Approximately 184 million .
      8. Free Cash Flow: $1.4 billion to $1.5 billion .
        • Operating Cash Flow: $2.6 billion to $2.8 billion .
        • Capital Expenditures (CapEx): $1.2 billion to $1.3 billion .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Anheuser-Busch InBev - Competitor in the beer segment .
    • The Boston Beer Company - Competitor in the beer segment .
    • Heineken - Competitor in the beer segment .
    • Mark Anthony - Competitor in the beer segment .
    • Molson Coors - Competitor in the beer segment .
    • Deutsch Family Wine & Spirits - Competitor in the wine segment .
    • Duckhorn Portfolio - Competitor in the wine segment .
    • E. & J. Gallo Winery - Competitor in both wine and spirits segments .
    • Ste. Michelle Wine Estates - Competitor in the wine segment .
    • Treasury Wine Estates - Competitor in the wine segment .
    • Trinchero Family Estates - Competitor in the wine segment .
    • The Wine Group - Competitor in the wine segment .
    • Bacardi USA - Competitor in the spirits segment .
    • Beam Suntory - Competitor in the spirits segment .
    • Brown-Forman - Competitor in the spirits segment .
    • Diageo - Competitor in the spirits segment .
    • Fifth Generation - Competitor in the spirits segment .
    • Pernod Ricard - Competitor in the spirits segment .
    • Sazerac Company - Competitor in the spirits segment .

    Latest news

    Recent developments and announcements about STZ.

    Financial Reporting

      Earnings Call

      ·
      5 days ago

      Constellation Brands (STZ) has released its Q3 fiscal 2025 earnings call transcript, providing key updates on its financial performance, strategic initiatives, and market outlook. Below is a summary of the main points:

      Revenue and Profit Performance

      • Beer Business: Net sales grew by 3%, driven by a 1.6% increase in shipment volume and a 2% price uplift. Operating income for the beer segment grew by 2%, with an operating margin of 37.9%.
      • Wine and Spirits: Net sales declined by 14%, primarily due to a 16% drop in shipment volumes. Operating income for this segment fell by 25%, with ongoing headwinds in the lower-priced wine category and retailer inventory destocking cited as key challenges.
      • Enterprise Results: Comparable EPS for Q3 was $3.25, flat year-over-year. The company updated its fiscal 2025 guidance, expecting enterprise net sales growth of 2%-5% and comparable EPS between $13.40 and $13.80.

      Management’s Forward Guidance

      • Beer Business: Full-year net sales growth is now projected at 4%-7%, with operating income growth of 9%-12%. The operating margin is expected to remain around 39%.
      • Wine and Spirits: Fiscal 2025 net sales are expected to decline by 5%-8%, with operating income projected to drop by 17%-19%.
      • Capital Allocation: The company plans to deploy approximately $3 billion in CapEx between fiscal 2025 and fiscal 2028, with a focus on modular expansions to maintain flexibility. Share repurchases and dividends remain a priority, with $1.2 billion returned to shareholders year-to-date.

      Market Conditions and Strategic Initiatives

      • Macroeconomic Headwinds: Management highlighted subdued consumer spending and value-seeking behavior as near-term challenges. However, they do not view these trends as structural issues.
      • Beer Segment Strength: Despite industry-wide challenges, the beer business outperformed the total beverage alcohol category. Key brands like Modelo Especial and Pacifico showed strong growth, with Modelo Especial maintaining its position as the top share gainer in U.S. tracked channels.
      • Wine and Spirits Turnaround: The company is focusing on higher-end brands like Meiomi and Kim Crawford, which saw depletion growth of over 7%. The recent divestiture of SVEDKA aligns with this strategy.

      Analyst Questions and Management Responses

      • Pricing and Competitive Dynamics: Management emphasized a selective approach to pricing adjustments, targeting specific markets and SKUs to maintain consumer-friendly practices.
      • CapEx and Expansion Plans: The modular nature of brewery expansions allows for flexibility in capital deployment. The Veracruz facility is on track to open in fiscal 2026, with an initial capacity of 3 million hectoliters.
      • Long-Term Growth Outlook: Management remains optimistic about the growth potential of key beer brands and expects to continue outperforming the broader CPG sector.

      Key Analyst Concerns

      • Analysts raised questions about the impact of macroeconomic conditions on beer depletion rates, the potential for tariff risks, and the long-term health of the beer category. Management reiterated their confidence in the resilience of their portfolio and their ability to navigate these challenges.

      For more detailed financial metrics and strategic insights, the full transcript and accompanying slides are available on the company’s investor relations website.

      Earnings Report

      ·
      5 days ago

      Constellation Brands, Inc. has released its Q3 FY 2025 earnings results. Here are the key highlights:

      • Earnings Per Share (EPS): The company reported a GAAP EPS of $3.39 and a comparable EPS of $3.25 for the quarter.

      • Beer Business: The Beer Business achieved its 59th consecutive quarter of depletion volume growth, with a net sales increase of 3% supported by a 1.6% rise in shipment volumes. Notably, Modelo Especial maintained its position as the #1 brand in dollar sales.

      • Wine and Spirits Business: The segment saw a decline in net sales by 14%, primarily due to a 16.4% decrease in shipment volumes. This was attributed to weaker consumer demand and retailer inventory destocking. The divestiture of SVEDKA was completed, aligning the portfolio with higher-growth, higher-margin brands.

      • Financial Performance: The company generated year-to-date operating cash flow of $2.6 billion, a 9% increase, and free cash flow of $1.6 billion, a 13% increase.

      • Guidance: Constellation Brands updated its fiscal 2025 reported EPS outlook to $3.90 - $4.30 and comparable EPS outlook to $13.40 - $13.80. The Beer Business expects net sales growth of 4 - 7% and operating income growth of 9 - 12% for fiscal 2025.

      • Dividends: A quarterly cash dividend of $1.01 per share of Class A Common Stock was declared.

      These results reflect Constellation Brands' strategic focus on premiumization and operational efficiency, despite challenges in the Wine and Spirits segment.